Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Reporting season enters its final week – August 24 – 28
Company reporting season is in its final stretch with roughly two-thirds of the ASX 200 having reported and another +40 companies still to go. Whilst expectations were for a painful season filled with earnings misses, guidance downgrades and massive share price losses, it has been anything but that. Rather this season has pleasantly surprised on the upside. Earnings were not as bad as everyone thought.
In-fact for the month the ASX 200 Index is up 183 points or 3.1%. According to FNArena, 150 companies have reported so far. Of those, 51 (34%) have beaten expectations, 74 (49.3%) were in line with expectations and 25 (16.7%) missed expectations. A pandemic led reporting season with company results heavily affected by COVID-19 had almost every broker fearing the worst, pushing expectations and valuations lower.
It seems the bleak predictions of a disastrous season were well overdone. Two things that were evident however, was the lack of forward guidance which can be put down to the uncertainty and volatility that still remains, making outlook statements very cloudy. The other thing that was evident were the large number of capital raisings used to shore up balance sheets or help companies remain afloat.
And it is a similar story in the US. About 82% of the S&P500 have reported results so far, and almost all have beaten expectations. The same thematic playing out in the US with tech stocks continuing to benefit from the shift to working from home which resulted in a huge uptick in e-commerce demand.
This week’s draw card are they Buy Now Pay Later platforms Afterpay (ASX:APT) and Zip Co (Z1P) both reporting on Thursday, Flight Centre (FLT), Woolworths (WOW) and Annsell (ASX:ANN), also due to post results this week. Below is a table of this week’s results.
| Date | Company | Beat or Miss | Price Before | Price End | % on the day |
| Aug-24 | Chorus (CNU) | In line | $ 7.38 | $7.46 | 1.08% |
| Fortescue Metals Group (FMG) | In line | $ 18.33 | $18.56 | 1.25% | |
| G8 Education (GEM) | In line | $ 0.99 | $0.93 | -6.57% | |
| Nearmap (NEA) | In line | $ 2.75 | $3.04 | 10.55% | |
| nib Holdings (NHF) | Beat | $ 4.79 | $4.53 | -5.43% | |
| Monash IVF (MVF) | In line | $ 0.63 | $0.58 | -7.94% | |
| NRW Holdings (NWH) | In line | $ 2.27 | $2.26 | -0.44% | |
| Ooh!Media (OML) | – | $ 0.94 | $1.04 | 11.23% | |
| Super Retail Group (SUL) | In line | $ 10.81 | $10.68 | -1.20% |
Reliance Worldwide (ASX:RWC) – Shares in the plumbing services company are up a blistering 17% in early trade following strong sales growth recorded in the US to start the new financial year despite a fall in FY20 profit as a result of COVID-19 putting a damping effect on residential construction. The company posted a NPAT fall of 33% to $89.4m despite a rise in Net sales of 5% to $1,162.4m. A 2c final dividend was declared. The highlight was the Americas business, which did well through the pandemic recording a 19% rise in sales for the period whereas sales in Europe, the Middle East and Africa fell 20%. Australia fell 3%. No guidance was given but management has indicated that there was a 22% rise in US sales for July. It is almost as good as guidance. The positive sales momentum seen in the US together with Europe, Middle East and Africa once returned to normal, should make for a bright path ahead.
Ooh!media (ASX:OML) – The digital roadside signage company posted a solid set of HY results during what was an extremely tough period for the industry. COVID-19 caused an unprecedented market and audience decline which hit revenue and profits. Despite this, the company was able raise additional equity early on, reduce costs and capital expenditure and manage cash flows to reduce debt and place the company in a strengthened position. OML maintained its market share in Australia and New Zealand out of home markets. OML recorded an underlying NPAT loss of $16.9m compared to $18.2m profit in prior corresponding period and a Revenue decline of 33% to $205m. Trading in the third quarter of this year is progressing well with August 2020 tracking at 60% of August 2019. No guidance was provided.
G8 Education (ASX:GEM) – Shares in the childcare operator are down almost 9% on what looks like a disappointing set of results, largely impacted by the coronavirus pandemic and subsequent restrictions on the early childhood industry. The company posted a 28.4% fall in half-year revenue to $308.3m which led to a statutory loss after tax of $239m, resulting from a non-cash impairment charge of $237m. Underlying net profit fell by 55.9% to $11.6 million for the year. Whilst $301m in equity was raised to reduce debt and preserve cash, the company suspended its dividend policy with the exception of the CY19 fully franked dividend of 6 cents per share payable in October 2020. Again, management was unable to provide any guidance given the uncertainty facing the company at the moment. Capital preservation in volatile times can sometimes be the best option in the long run.
AMP Ltd (ASX:AMP): Management at AMP finally bowed to public pressure with Chairman David Murray, Director John Fraser and recently appointed CEO of AMP Capital Boe Pahari all stepping down over the weekend. Importantly, Debra Hazelton who is also a board member of the Treasury Corporation of Victoria will be taking over as Chairwoman and Mr Pahari will move back to his original position with Group CEO Francesco de Ferrari taking on board the position at AMP Capital. Whilst this decision took somewhat longer than we would have liked, it is the right move as the company seeks to move forward, rather than look to the past. The company’s recent earning result, in which it highlighted strong underlying growth and announced the wide-ranging reduction of fees on its superannuation products, was at risk of being derailed by this leadership and cultural crisis. Having spent some time personally at the Commonwealth Bank during Murray’s tenure, I had always question his ability to change their entire nature of AMP’s business model, this change gives me increased confidence in the probability of a successful turnaround. I’m expecting a new appointment to AMP Capital will be made in the coming months, with the CEO holding a caretaking role until that time, with the potential for a rebrand and eventual spin off to improve shareholder value. The shares look to open higher this morning. Comment: Finally the shackles of the past have been released.
Boral Ltd (ASX:BLD) unexpectedly announced a $1.3 billion write-down of their North American operations over the weekend, pricing in lower housing starts and reducing good will on their major Headwaters purchase and related Joint Ventures. It is the first move of the new CEO as he seeks to clear the decks and embark on a growth program coinciding with the post pandemic recovery. The Australian businesses were similarly written down by a mich smaller $12 million due to slowing construction. The result of both changes was earnings to fall between $820 – $825 million and profit before the $1.3 billion significant, non-cash impact of the above, at $175 to $180 million. Unfortunately, the second half dividend has been cancelled ahead of their full earnings report on Friday. For those interesting, management are required to update the market as soon as they are aware of these changes, hence why they could not wait until Friday. Comment: Disappointed but not unexpected decisions amid a global slowdown.
Fortescue pumping out records
Fortescue Metals Group Ltd (ASX:FMG) delivered recover revenue of $12.8 billion on the back of a 6% increase in iron ore shipments for the financial year. Net profit was $4.7 billion, ahead of the $4.6 billion expected which will send shares higher today. The company has continued to benefit from its growing scale and has shown a remarkable recovery after near capitulation in 2019 now pumping out $4.5 billion in free cash flow each year. The low cost of production at $12.94 per tonne is allowing return on equity of 40% and this is likely to continue improving as reports of Chinese ore stockpiles are well below pre-pandemic levels. Importantly, the dividend looks to be a major beat at $1.0 compared to $0.72 expected. Comment: Great result from a booming sector.
Isolation beards boosting Shaver Shop
It seems the boom in isolation beards among Victorian’s locked at home is resulting in a massive improvement in sales at Shaver Shop Ltd (ASX:SSG). Management reported sales growth of $195 million to $195 million, which is 15.3% on a like for like basis (meaning based on the same number of stores as FY19). Online sales were up to 103% for the year and unlike most retailers actually represent more than 22% of sales; and near doubling of the 13% level in 2019. The result was stronger net profit, up 44% to $10.6 million and an increased dividend on 2019; bucking the trend of the sector. The company did not receive Job Keeper payments and appears to be one built for the future. Comment: Solid result, but boosted by reducing stock levels, which may become an issued.
