Afternoon Report / Reporting season kicks into gear (PPS, JBH, BLD)

By Market Matters 10 February 20

Reporting season kicks into gear (PPS, JBH, BLD)

Market Matters Afternoon Report 10th February 2020

WHAT MATTERED TODAY

A weaker session locally today although the market did edge up from the session lows which were set around midday. Stocks were initially sold off with the index hitting a 6983 low early on before bouncing to close back up above ~7000. Asian markets were all down, but again, losses were curtailed to less than ~1% while US Futures were fairly muted during our time zone after some initial weakness. At the sector level, the hot healthcare stocks were best on ground while there was buying back into the Gold sector, while growth related areas were sold off, Materials, Energy & IT the biggest drags.

Reporting season kicking up locally with a reporting schedule available: CLICK HERE

In the recording below I cover results from JB Hi-Fi (JBH) and Boral (BLD)

Tomorrow we have reports from companies including:  AMC, AVN, CGF, CLW, MQG, SUN, TCL

Overall, the ASX 200 fell by -10pts/ -0.14% today to close at 7012. Dow Futures are trading higher by +8pts/+0.02%

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE

Boral (BLD) -10.68%: Updated the market today on the issues they flagged around their Window’s business back in December of 2019. In short, that division has overstated earnings and heads have now rolled, including the CEO Mike Kane who will retire early. The impact on before tax earnings is $US24.6m inline with their guidance when they first discovered the irregularities of $US20-30m at the EBITDA line. In short, while the headlines here are poor this is not new news. The new news in the update came from 1. The early retirement of Mike Kane (Positive) & 2. An earnings downgrade (Negative). BLD now expect full year net profit of $320-$340m while the market was at $348m, a 5% downgrade at the mid-point. We own BLD from $4.86 and are now reviewing the position here. The stock is off far more than the downgrade suggests.

Boral (BLD) Chart

JB Hi-Fi (JBH) +11.5%: cracked all-time highs today in the face of a softer broader market thanks to another stand out report. In what was considered to be a difficult 6 month period for retail in Australia, JB have managed to grow earnings 6.55% to $170.6m for the first half largely a result of margin improvements with revenue adding 3.9%. The bulk of the good work was done by the JB Hi-Fi Australia unit which saw particular growth in hardware, while an improving online offering added 18.3% to sales. The Good Guys brand also contributed positively with 1.5% sales growth, ending the year with a wet sale with 2Q sales +2.7%  pcp.

The company also trumpeted an impressive start to the new year. Comparable sales for January in JBH Australia are 6% higher than last year, while The Good Guys was tracking +1.4% on January 19. Guidance for the full year was provided, with NPAT at $265m to $270m around 7% higher than FY19, and around 2.5% better than consensus estimates. They have shown continual improvements in costs and efficiency, remained a market leader in range and price all while adding new stores effectively and improving the online offering all during an anaemic retail market. They managed to lift their half year dividend to 99c franked yield, up from 91c and on a reasonable 18.5x PE, JBH is one on the buy radar for us.

JB Hi-Fi (JBH) Chart – The chart doesn’t suggest a tough retail environment

Praemium (PPS) -2.02%: investment platform provider Praemium tracked marginally lower today despite what was a reasonable half year result published this morning. The report showed revenue growth of 6% on the first half of 19 with EBITDA at $7m just marginally below consensus estimates. Praemium continue to grow their already market leading margins, up to 28.8% at the EBITDA level, up from 24.3% pcp. One drag to the result was another half of losses from their international division of $1m. The division has been touted as cashflow breakeven for a number of years, and looks set to be delayed until at least FY21. PPS is sitting on a sizable cash balance, and now growing their franking credit balance, shareholders look set for a dividend next financial year.

Praemium (PPS) Chart

Broker moves;

  • oOh!media Cut to Hold at Canaccord; PT A$3
  • GTN Ltd Cut to Speculative Buy at Canaccord; PT A$1
  • HT&E Cut to Hold at Canaccord; PT A$1.70
  • Mirvac Group Rated New Hold at Jefferies; PT A$3.62
  • Stride Property Cut to Sell at UBS; PT NZ$2.25
  • REA Group Cut to Underperform at Macquarie; PT A$110
  • Cimic Raised to Buy at Morningstar
  • Reliance Worldwide Cut to Sell at Morningstar
  • Boral Cut to Underperform at Credit Suisse; PT A$4.45
  • BHP Group PLC Cut to Reduce at Oddo BHF

OUR CALLS

No amendments today

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

Disclosure

Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday, or after the session when positions are traded.

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