Collected Wisdom: Reporting season part 2

This week we look at Santos, Telstra, Domino's, Webjet, Ardent Leisure and Sydney Airport.

Summary: Domino’s result beat guidance but consensus is a hold with many analysts seeing it as fully priced, while Ardent Leisure’s Main Event entertainment facilities experienced some weakness in the face of a cooler Texan summer. Telstra’s result was in line with analyst expectations but the telco faces an issue in the reduction of excess data charges, and consensus is a hold on Sydney airport. Steady growth is expected in future from Webjet Ltd.

Key take out: Analysts believe that an oil price recovery will help the Santos balance sheet, in the face of a $2.7 billion loss reported this week – consensus on the stock is hold.

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

Domino’s Pizza Enterprises (DMP)

We start off this week’s round of reporting with an old favourite in Domino’s Pizza Enterprises. Last week Don Meij and co. released DMP’s half-year results to the market after the recent string of European acquisitions.

Domino’s has set a trend of beating guidance and this result was no exception, coming in above all analyst expectations. Underlying EBITDA was up 44.9 per cent to $87 million and the interim dividend increased by 41.1 per cent on the prior corresponding period to 34.7 cents per share.

The second half seems to be on track as well. DMP expects to open 35 more stores in FY16 in New Zealand and Australia, and 43 more stores (not including the acquisitions) to open across Europe.

Analysts are in two camps but both sides are positive. There are those who believe there is enough organic growth through the store openings and technology DMP has implemented – these analysts have a buy call. Then there are those who are happy with the growth outlook but see Domino’s as a market darling and fully priced, and subsequently are happy to hold.

The latter group are slightly ahead here. The average 12 month price target is $59.76, just below the share price at the time of writing, which is $60.47.

Investors are generally advised to hold Domino’s Pizza Enterprises at current levels.

Ardent Leisure Group (AAD)

The operator of theme parks, bowling alleys and gyms both here and abroad reported last week to a tepid response. The result met some expectations and slightly fell short of others. Analysts used the terms “soft” and “weak” to describe the result.

The cause of this softness was the core operation, Main Events. The US-based entertainment centres suffered due to a number of issues. The opening of new Main Event facilities in the same area to secure the market, as well as and competitors entering the local Texas market had impacts on the result. 

A milder Texan summer and the unfavourable timing of public holidays also impacted trading for Main Events. This weaker performance was offset by growth coming from the Health Clubs.

The issues that hampered Main Events seem to be temporary according to analysts, and all believe these centres to be the main source of growth. All analysts remained favourable on their outlook. Additionally, with a rise in tourism in Queensland the theme parks should lift.

Right now the analysts are split 50/50 between a buy and a hold. There is not a single sell call on AAD. Currently the price target sits at $2.20 with the share price sitting at $1.80 at the time of writing.

Analyst consensus is split on AAD between a buy and a hold.

Telstra Corporation (TLS)

The nation's largest telco reported last week and the results were in line with analyst expectations. TLS also reaffirmed its full year guidance for low single digit growth.

The big story to come out of all the analyst write-ups was the theme of increasing competition in the mobile market. The growth of 3.7 per cent in the mobile space came predominantly from hardware sales. What has hurt Telstra is the reduction in excess data charges. This has come in the form of higher data allowances in plans and the addition of extra data plans for those who do exceed data limits.  

The above data situation is an issue for TLS as the fixed line business continues to decline. Fixed line data services look to be the key driver for the telco to reach the single digit growth highlighted. Despite the work ahead of the company to grow the mobile business, the balance sheet remains solid and analysts have TLS marked as a hold. From the reports you can tell they will all be looking for an improvement for the mobile business over time.

The current average 12 month price target for TLS is $5.52. At the time of writing the share price was $5.21.

Investors are generally advised to hold Telstra Corporation at current levels.

Sydney Airport (SYD)

Last week was full year results time for Sydney Airport, and the result received a mixed reception from analysts, leading to a unanimous hold call.

There were analysts who were disappointed SYD was not able to greater leverage off the increase in airport traffic. At the same time there were analysts happy with the positioning to grow from the increasing traffic and capacity.

What all analysts were pleasantly surprised by was the increase in dividend with guidance for FY16 of 30 cents per share, an increase of 17.6 per cent above 2015. Analysts agree this will be enough to sustain the current level of the share price.

Forward-looking traffic growth will grow earnings growth and at the current price the call is a hold. The average 12 month price target is $6.63. The share price at the time of writing is $6.415.

Investors are generally advised to hold Sydney Airport Holdings.

Webjet Limited (WEB)

There was a very solid result from Webjet, despite additional capital being spent in growing business to business (B2B). As investment into B2B ramps up, the direct to-consumer business continues to grow solidly.

Revenue for the online travel business grew by 26.8 per cent, with costs growing as well, by 27.1 per cent, due to the above mentioned spend. Website visitors continue to grow, as has the use of mobile devices and the app. Importantly, the conversion rate of visitors to customers has improved steadily.

Steady growth is anticipated from the analysts who were split between a buy and a hold with the hold call just edging it. WEB management did not issue new guidance for the second half of FY16 but did point towards total transaction value (TTV) continuing ahead of the first half growth of 28.3 per cent.

The average 12 month price target sits currently at $5.55. The share price at the time of writing sat at $6.05.

Investors are generally advised to hold Webjet Limited.

Santos Limited (STO)

Embattled energy company Santos released its full year results at the end of last week. This included a loss of $2.7 billion due to a pre tax impairment of $3.9bn. The oil and gas producer has $4.6bn of cash on hand. Total net debt sits at $6.5bn.

What is determining all analyst’s outlooks on Santos is management's ability to deal with the balance sheet in the short term. Analysts believe there will be a recovery in the oil price late 2016. This would provide much needed relief to Santos’ stretched balance sheet.

Despite this delicate balancing act, management believe STO can be cash flow positive by the end of 2016 and it seems there are a few analysts out there who are willing to back them...or at least back an increase in the oil price.

Analysts are taking a bet each way with four buys; two holds and three sell calls from those who cover the stock. So when we work out if this is a buy, hold or a sell, it falls into the hold category but there are strong opinions either side so buyer beware and seller!

The average 12 month price target is $4.18. The current share price at the time of writing is $3.35.

Investors are generally advised to hold Santos Limited.

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