Nicholas Grove: I'm Nick Grove for Morningstar.com.au and today I'm joined by Morningstar head of equities research, Peter Warnes, who is here to discuss the latest batch of results from earnings season, which draws to a close this week.
Peter thanks very much for your time today.
Peter Warnes: Thanks Nick.
Grove: First of all, Peter, this week we saw Ramsay Health Care post its results. Did they deliver according to your expectations?
Warnes: Nick, this was a terrific result, a bit better than expectations and it was a beautiful set of numbers. Paul would be very, very pleased with what the company delivered -- NPAT up almost 20 per cent, revenue up 18 per cent, EPS up 21 per cent, dividends up 21 per cent. As I said, a beautiful set of numbers. Ramsay is in the caring business. It cares about its patients, it cares about its employees and it cares about the shareholders, and that's about as good as you can get. I mean, the growth was very, very strong in terms of the drivers of it.
The organic growth is around GDP, but the brownfields development, where they're adding capacity to existing operations, that is driving very, very strong growth and overlaying that is some very, very quality and well-thought-out acquisitions, both domestically and internationally. You put all that together, you wrap it up with Ramsay care and the Ramsay culture, and you get what you deserve -- a company that's almost close to perfection.
It's a stock really that should be in everyone's portfolio. They are in the top five companies in the world in private hospitals. They have been 50 years in the private hospital industry in Australia. They have 212 hospitals. It is a model that can be exported and they are exporting it to the UK, to France, to Asia, into China and domestically.
One of the good things about the results was that the UK was a very, very nice turnaround there in a difficult space and they are doing well there, and they are going to do well in France as well. So overall a terrific result.
Grove: Woolworths released its full-year earnings this morning. Have you had a chance to run your eye over those results and were there any surprises there?
Warnes: Nick, pretty briefly, again, look, that result was about where we thought at about $2.4 billion and a bit. The dividend was a little bit off the pace. We thought 140 cents and it came in at 137 cents. I think it's probably why the market's probably just taken it down a peg today. But, look, the engine room, Australian food and liquor, it is just still firing -- the EBIT margin of 7.96 per cent and the second-half margin 8.05 per cent. I mean the exits margin is terrific, sets it up nicely for 2015.
Coles, on the other hand, is at 5.26 per cent in their food and liquor. There is 270 basis points difference between the two, and strangely enough, Coles have not made any inroad into that margin, if you like, or the gap, since Wesfarmers took it over.
So it just tells you that Woolworths' supply chain and procurement and all those things are still working very, very efficiently, but I suspect that that higher margin is coming from the liquor. Dan Murphy's is just doing a Bunnings for it and it's crushing it. I mean, there are 18 per cent of sales now in food and liquor from Dan Murphy's and the margins there are much, much higher than grocery and that's what's occurring there.
Big W was very disappointing, but they are in transition. They have been there for a little while, nearly $4.4 billion of sales and they've only got a margin of 4.3 per cent, whereas Kmart, the competitor, it's got $4.2 billion of sales and its margins are 8.7 per cent. O'Brien would love to squeeze that gap and the quicker the better. So ,overall, no, a good result, but they have got some work to do in Big W and we know they've got a lot of work to do to try to catch Bunnings in that home improvement space.
Grove: Finally Peter, how would you characterize this earnings season overall and just briefly, what are a few of your hopes and concerns for the market in FY15?
Warnes: Nick, overall, the reporting season wasn't too bad. But given the expectations weren't all that high, I would say that, look, the stocks that we cover, about 70 per cent to 75 per cent of them probably met or exceeded our expectations, albeit not blowing people things out of the water. And there were a few disappointments as we kind of expected albeit that they were in the spaces that we knew about, I mean, mining services and discretionary retail and what have you. But overall, I have to say, given the economic growth is below trend and inflation is 2 per cent and bit, it's been hard to get top-line growth and of course a lot this margin improvement is coming from cost cutting and low interest rates.
Low interest rates, going forward, look like they are going to be there for another year. Cost cutting is probably coming to the tail so we are starting to look now forward to hopefully an improvement in the economy through '15 to drive some volume and the margin growth coming from volume rather than cost cutting.
Now, going forward, look, domestically it would be lovely to get some clarity and some transparency out of Canberra without getting too politic, but internationally, the US does look like it's got a lot of traction. You can expect interest rates to start moving up there, I'd say, from about mid-2015 and that's positive. The Eurozone is still well and truly stuck in a bind and Draghi will throw everything he can at that to get it out of where it is and certainly not let deflationary pressures take hold.
China, there is a lot of conflicting issues there, and commentators are probably equally kind of disposed, if you like, on either side. I would think that China will probably muddle through with a 7 per cent in front it for GDP growth. So, overall, we are looking for a more moderate year 2015, markets still in positive territory, and hopefully, Australia can join in.
Grove: Peter thanks very much for you time today.
Warnes: Pleasure Nick.