Gems are out there, just below the surface
IT IS not all bleak out there in corporate Australia despite the macro-economic backdrop. One does not have to look too hard to find companies reporting strong profit growth, beating market expectations or announcing positive business developments.
IT IS not all bleak out there in corporate Australia despite the macro-economic backdrop. One does not have to look too hard to find companies reporting strong profit growth, beating market expectations or announcing positive business developments.On one hand we have Dun & Bradstreet reporting a decline in Australian executive's profit expectations, data showing the US is experiencing a slowdown in manufacturing, China's manufacturing industry also slowing and Europe continuing to muddle its way through its ongoing financial crisis.And we have companies such as surfwear brand distributor and retailer Billabong, whose earnings expectations have fallen by more than a third and the company has undergone a deeply discounted $225 million capital raising to shore itself up.On the other hand, there are companies trimming fat, pursuing niche markets where they have a knowledge or skill advantage, or competing nimbly to grab market share.Among larger companies, construction and development group Lend Lease this week issued earnings guidance that was better than the market had priced in, albeit without providing too much detail on the key drivers (the company highlighted capital recycling as a driver and analysts also pointed to lower tax).Lend Lease is one of 19 companies for which analysts have revised their earnings-per-share expectations upwards for the 2012 financial year (based on Capital IQ data).These 19 companies have certainly been outnumbered by negative shifts in expectations as analysts have cut their forecasts by more than 5 per cent for 41 companies. But the point is that there are businesses that are doing well thanks to great strategies, great competitive positioning or just the fortune of being in the right place at the right time.Lumbering multinational giants find it very difficult to outperform the macro-environment, so it is generally smaller businesses that have opportunities to grow market share and consolidate their sectors that have the capacity to improve profits and returns to shareholders in adverse environments.Some of the other companies that have been on the positive end of consensus upgrades are: childcare group G8 Education, agricultural investment vehicle PrimeAg Australia, health insurer NIB Holdings, petroleum refiner and marketer Caltex Australia, and niche industrial brands group Alesco Corporation.Alesco, which supplies construction products and residential hardware, such as garage doors, Robinhood rangehoods and cabinet components, has upgraded its earnings target for the just-ended financial year amid a battle with hostile bidder DuluxGroup. Its underlying net profit guidance increased by about 10 per cent as it lowered corporate overheads in the second half and continued to weather a depressed construction market, to which its brands are heavily exposed.Some companies that have announced strong growth in recent weeks have not made the list simply because the healthy rate of growth was already expected. A case in point is environmental consulting group Cardno, which last week announced its annual net profit would be about 23.5 per cent up on fiscal 2011. But the consensus among analysts had already been that Cardno would make a net profit of just under $74 million, a figure at the top end of the expected range, which starts at $71 million.Turning to analysts' consensus data, there are 114 ASX listings that are expected to generate double-digit growth in earnings, excluding miners and oil and gas groups.Then there are other companies that don't make the databases for analysts' revisions because there aren't many, if any, analysts following them.Little known suburban Sydney engineering firm Saunders International, which designs and constructs liquid storage tanks and reservoirs, has flagged that its underlying profit for the 2012 financial year will be up by 12.5 per cent.Among the stocks this analyst publishes research on has shareholdings in and have had a couple of weeks of good news, are West Australian-focused property developer Finbar and telecommunications and utilities services provider Service Stream.Finbar bettered expectations when it announced its profit for the year would be up by 17 per cent to $28 million, despite having to bring to account a non-cash expense relating to a past period.And Finbar followed that up with news it had pre-sold 50 of the 174 planned apartments in its next Karratha project, Pelago East, without having begun to market the project.Service Stream (which has a joint venture with Lend Lease for national broadband network construction work) has won a new contract to roll out the NBN to new residential estates, retained at least temporarily a contract to service Telstra valued at $70 million for another six months, and maintained its expectation that its full-year cash earnings (EBITDA) will be better than the result from the 2011 financial year, despite digesting an expense related to the settlement of a historical contract dispute and the loss of contracts.
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