Collected Wisdom

This week we look at Virgin, ANZ, Ansell and JB Hi-Fi.

Summary: Virgin’s results showed a margin improvement for the domestic business and a weaker result for the international business. Analysts are mixed on ANZ after its $3 billion capital raising, with consensus favouring a buy call. Ansell reported forward guidance below analyst expectations, causing a sharp fall in its share price, while JB Hi-Fi’s recent results beat expectations but analysts harbour doubts about the retailer’s ability to continue sales growth.

Key take-out: Most analysts have a hold recommendation on Virgin, which has a positive domestic outlook despite weak leisure demand.

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.

Virgin Australia Holdings (VAH)

“How do you become a millionaire?" Richard Branson once quipped. "Start as a billionaire and launch an airline." Although the headline numbers were reported back in late July, the full financials and commentary provided more insight to the divisional performance and strategy. Key details included a margin improvement for the domestic business, and a weaker result for the international business.

Part of the weakness in the international business is due to competition from low cost carriers to key short-term holiday destinations such as Bali. The company’s decision to move with the market and provide a Tiger (low cost) offering for these destinations has generally been well received by the analyst community.

The domestic outlook is positive despite weak leisure demand. The outlook will be driven by market share growth in the corporate market, lower fuel costs and cost reduction initiatives.

A majority of analysts have a hold recommendation with an average target price of $0.50.

  • Investors are generally advised to hold Virgin Australia Holdings at current levels.

ANZ Banking Group (ANZ)

Last Thursday (August 6) ANZ went into a trading halt ahead of the group's announcement of a $3 billion capital raising. When it reopened on August 7 it fell as low as $29.80 before closing at $30.14, compared to its close prior to the trading halt of $32.58.

The announcement has been met with mixed reviews from analysts with one upgrading ANZ to an outperform rating while stating the capital raising only goes halfway towards what they expect ANZ requires. The analyst says this gives ANZ a good negotiating position when it comes to anticipated asset divestments that should see it get to the level of capital it really requires.

But those who remain neutral or negative on ANZ point to the placement as a sign the asset sales have not progressed well – meaning perhaps the bank has tried to sell Asian assets but was not able to get a suitable price and hence the capital raising.

Surveying analysts the consensus is leaning towards a buy call with a handful sitting in the middle ground with a hold.

Eureka Report income analyst James Samson looked at ANZ this week and made the point that investors are splitting hairs when picking between the big four banks: They all need to continue to raise their Tier 1 capital ratios through asset sales or capital raisings, especially given recent directions in APRA regulations. ANZ has come into the income portfolio as it has a strong yield and the lowest historical price to earnings ratio of the big four banks. To read more of his thoughts, see The two best banks for income investors (August 10).

  • Investors are generally advised to buy ANZ at current levels.

Ansell Limited (ANN)

ANN, the healthcare product manufacturer and stock that lends itself the most to headline puns, announced its results on Monday August 10 and didn’t the market make its feelings known, with ANN closing 15.8 per cent lower that day.

The issue did not lie with the result. Operationally ANN hit the numbers analysts expected but as always the market is forward looking. The outlook was not in line with analyst expectations with ANN giving guidance of $US1.05-1.20 earnings per share (EPS) when the market had built in expectations closer to $US1.28. Currency headwinds have been noted for the downgrade in guidance.

After the sharp decline in share price following the report the consensus among analysts is ANN is a hold. Out of a dozen surveyed only two had the company as a sell while six sat firmly in the middle. Those with a buy call had a price target closer to $26 (compared to a current price of $21.60) and the sell side were at $20.

  • Investors are generally advised to hold ANN at current levels.

JB Hi-Fi Limited (JBH)

The only things more turbulent than the JBH share price over the last two days are the mood swings the company’s teenage staff suffer when their favourite band calls it a day. On Monday JBH hit a high of $22.37 only to fall 7 per cent the following day.

The retailer beat all analyst expectations with net profit after tax up 6.4 per cent and EPS up 7.4 per cent triggering a swift re-rating of the share price. But the outlook weighed on the price once market participants had time to digest the results, prompting one analyst to muse perhaps, given the re-rating, it was time to take some profit from JBH.

Looking forward the analysts downgrading their view on the retailer (whose OH&S compliant footwear is a pair of Chuck Taylors) cite two main reasons. First, the roll out of JB Hi-Fi Home, as analysts are still not convinced this can be a game changer. More importantly, there are doubts around JBH’s ability to continue sales growth which is a strong contributor to share price growth.

As it stands analysts have JBH as a hold right now with very few exceptions. The few who are bullish point towards a price target of $24. The few who are bearish are in the mid $18s and the peloton sit slightly above the current share price ($20.11) at $21.30.

  • Investors are generally advised to hold JBH at current levels.