Summary: Analysts expect Myer’s sales momentum to carry through the rest of this financial year, while Bank of Queensland expects to beat larger competitors in earnings per share growth going forward. Orica’s loss was in line with expectations but observers have welcomed extra disclosure, while SMS Management & Technology’s profit downgrade may have a silver lining, analysts say.
Key take out: The analysts who are positive on Myer say David Jones’ discounting run is unsustainable, although those with a negative view suggest the best sales quarter in six years came down to discounting too.
Key beneficiaries: General Investors. Category: Shares.
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Myer Holdings Limited (MYR)
It was Myer’s management team’s turn to stand up in front of shareholders and discuss last year’s results and give a guidance update for the first quarter’s trading. And positively for the long suffering shareholders of the retailer they had some good news looking forward.
First quarter sales for FY16 are up 3.4 per cent on the prior corresponding period. This is in line with guidance given by MYR management for FY16 NPAT between $64 million and $74m.
Analysts expect sales momentum to carry through the rest of FY16 for group. This coupled with a weak share price saw three analysts upgrade their call on the retailer: two from neutral to a buy and one from underperform to a hold.
Those analysts who are positive on the stock point towards main competitor David Jones’ current discounting run – which is providing some competition – as unsustainable. Those negative on the retailer suggest the best sales quarter in six years came down to discounting as well.
Despite the question of how much support the sales numbers received from the “spring clean” analysts see upside here. Those with a buy on MYR all have a 12-month price target of $1.20 with one bullish outlier at $1.25. Those with a sell have a target of $1. The average 12-month target is $1.13, compared to a current price of $1.07.
For more on MYR click here to watch Alan Kohler’s interview with chief executive Richard Umbers this Monday.
- Investors are generally advised to buy Myer at current levels.
Bank of Queensland (BOQ)
Bank of Queensland management put on a dog and pony show last week with a strategy update. The presentation did not really shed any further light on targets going forward but did give those already favourable on the stock further confidence. One analyst who already had a buy on the regional bank and subsequently increased their guidance afterwards noted management were full of confidence.
One strategy that did catch most analysts’ attention was the discussion around the cross selling into the bank’s 2013 acquisition Virgin Money. Management also stated Virgin Money will start to offer home loans alongside the existing offer of credit cards, super and insurance.
Management at BOQ also stated they will likely beat their larger competitors in earnings per share growth and dividend per share growth going forward. However, one analyst did call the statement from management regarding EPS growth a low target given the big four will be weighed down due to the capital raisings.
The majority of analysts still have a buy on BOQ despite the current share price of $14.18 closing in on the average 12-month price target of $14.53, and holding not far off the most bullish case of $15.40.
- Investors are generally advised to buy Bank of Queensland at current levels.
Orica Limited (ORI)
Last saw global explosives company Orica close out a volatile year with the release of the annual report. Orica reported a loss of $1.26 billion for the year, which includes a $1.69bn non-cash impairment charge. This caps off a rough 12 months which saw the board swing the axe on chief executive Ian Smith and the share price rise to $22.74 and fall as low as $14.75.
The result came in line with analyst expectations. What was welcomed by all observers was the enhanced disclosure from management, giving investors a greater look through during a tough time.
In the explosives business a turnaround for Orica hinges on the outlook for commodity prices. Do they have further to fall? And if so are there likely to be further mine closures impacting the sale of explosives? It is this question that has led most analysts to have ORI as a hold.
One analyst has stated that if commodities hold at current levels we will start to see an improvement in earnings following on to a meaningful improvement in FY17. The key word there is “if”.
The 12-month average price target for ORI is $16.72 and even the most bullish case is $23.50 and the most bearish is $13.47.
- Investors are generally advised to hold Orica at current levels.
SMS Management & Technology Limited (SMX)
It has been a testing period of time for SMX shareholders over the last few years with the share price experiencing more downs than ups. Their spirits would have been lifted in the three months leading up to last week's AGM with the share price rallying from the mid $3 mark all the way up to $5.43.
Those good times were cut short at the AGM with a profit downgrade which quickly saw the share price gains wiped off returning back to the low $3s. Earnings before interest, tax, depreciation and amortisation (EBITDA) for the first half of FY16 is expected to come in 15-20 per cent lower than the previous corresponding quarter.
Two main reasons were given for the downgrade. First, the effect of the transition period the sales side of the business is experiencing in the structural shift away from shorter term contracts towards longer, more annuity-style contracts. Also, a number of projects are coming to completion.
A number of analysts commented on a potential silver lining to the troubled IT company but not until mid FY16 and FY17. Even then the risk in the near term is enough to rein in their enthusiasm. Analysts also hinted that, while they are positive on the strategy going forward, there are still company specific issues. They potentially hinted at management's ability to pull off the changes.
The average 12-month price target for SMX is $3.59 with the most optimistic of analysts at $4.30 and the most pessimistic at $3.25.
For more on SMX you can hear Eureka’s James Samson’s thoughts during last week's Income First Model Portfolio update here.
- Investors are generally advised to hold SMS Management & Technology at current levels.