The busiest week of this earnings season has proven to be the best one for investors so far. Not only have the numbers been on the mend, most companies are back to handing out pots of cash to shareholders and promising better times to come.

As was already apparent from the results in the first two weeks, corporate Australia is firmly scrubbing off the effects of the coronavirus pandemic. A number of companies have now offered to return the JobKeeper wage assistance to the government as trading conditions improve substantially.

The third week of earnings has featured three of the big four banks, the three major miners, two casino operators and a number of market favourites such as Treasury Wine Estates (ASX: TWE) and Cochlear (ASX: COH).

JB Hi-Fi (ASX: JBH) kicked off proceedings for the week, proving again that serving consumers during the pandemic has proven extremely lucrative for the retail chains.

Half-year sales at the consumer electronics giant jumped nearly a quarter and net profit surged 86 per cent to $317.70 million, in part reflecting the online shopping boom through the pandemic. It nearly doubled interim dividend to $1.80 a share, becoming the latest retailer to ramp up payments to shareholders.

Morningstar director Johannes Faul, though, has stayed cautious on the no-moat company, and is forecasting negative sales growth from March.

“The market is likely expecting sales and profits to remain at abnormally high levels for longer than we expect,” he said. “We forecast earnings to come off the pandemic-induced cyclical high and expect dividends to fall back to $1.64 per share in fiscal 2022.”

a picture of an entrance to a JB Hifi store

JB HiFi's performance showed that serving consumers during the pandemic has proven extremely lucrative for the retail chains

Faul also remained watchful on Domino’s Pizza (ASX: DMP) despite a lift in shares of the fast food giant following strong first-half results. It reported a 33 per cent increase in profit and a 16.5 per cent rise in sales to $1.84 billion, with outlets in Europe and Japan among the best performers.

“Shares in Domino’s are baking in more much sales growth than we expect, potentially underestimating the cyclicality of same-store sales growth or overstating the global runway for new stores,” he noted, despite raising his fair value estimate by 7 per cent to $60 a share.

Appliance maker Breville (ASX: BRG) was the other retailer posting a hefty 29 per cent rise in half-year net profit this week, backed by a similar increase in revenue.

BHP (ASX: BHP) set the tone for the big miners with a massive $6.5 billion first-half payout to shareholders on the back of surging iron ore prices, which have been trading at well above $US100 a tonne since June 2020.

The mining giant declared a 15.4 per cent jump in underlying net profit to $US6 billion, helping it declare a record half-year dividend of $US1.01 per share, up from 65 US cents a year ago.

It was a similar story for rival Rio Tinto (ASX: RIO), which declared a $US4.02 a share dividend on the back of a $US 9.77 billion annual profit. Most of the earnings were delivered by Rio’s iron ore division.

Fortescue Metals Group (ASX: FMG) also nearly doubled the size of its half-year dividend, declaring a $1.47 a share payout following net profit of $US4.1 billion for the six months to December. Revenue for the period jumped 44 per cent to $US9.34 billion.

Morningstar director Mathew Hodge believes the iron ore miners are overvalued, given that the supply challenges in the iron ore market and strong demand from China will both eventually fade away.

“We still see meaningful downside for commodity prices from current levels, particularly for iron ore, but acknowledge that tighter markets will take time to normalise as the effects of China's fiscal and monetary stimulus wane,” he said.

Diversified miner South32 (ASX: S32) has also declared an improved 1.4 US cents a share dividend, despite half-year profits sliding 46 per cent.

Banks' boost reflects improving economy

Trading updates from three of the big banks this week underlined the improving economic conditions and the positive impact on the sector.

National Australia Bank (ASX: NAB) reported a 1 per cent improvement in its December quarter cash profit to $1.65 billion. Revenue declined 3 per cent, but the bank actually saw higher fees and commissions from an increased level of business activity. Credit impairment charges for the quarter also plunged to just $15 million, the lowest since 2008.

The encouraging numbers prompted Morningstar equity analyst Nathan Zaia to lift his fair value estimate on the stock by 4 per cent to $26 a share.

“With the bank's large loan loss provisions taken when the economic outlook was weaker, and the bank commenting that customers exiting deferrals are performing better than expected so far, we believe the loan loss outlook has improved,” he said.

Zaia also lifted fair value estimate for rival Westpac (ASX: WBC) by 8 per cent to $27 per share on lower medium-term loan impairment expectations. Westpac’s core earnings for the December quarter climbed 28 per cent to $2.4 billion while cash earnings also more than doubled to $1.97 billion.

“We thought market concerns were overstated, with the wide-moat bank’s cost advantages and customer switching costs to drive a return to much higher profits and returns on equity,” he noted.

ANZ (ASX: ANZ) also announced a jump in quarterly cash profit to $1.81 billion, with the result buoyed by lower loan loss provisions due to increased confidence in the bank’s institutional customer base. Zaia lifted his fair value estimate by 8 per cent to $27 per share and also expects the bank to return excess capital to shareholders over time. 

a picture showing an NAB awning in the Sydney CBD

Trading updates from three of the big banks this week underlined the improving economic conditions and the positive impact on the sector.

Ansell's figures risk being rubbery

Meanwhile, protective clothing maker Ansell (ASX: ANN) delivered a 25 per cent jump in half-year sales and a 62 per cent surge in net profit to $US 106.5 million led by demand for its health division products during the pandemic. That helped it lift its dividend payout to 33.2 US cents a share.

Morningstar senior equity analyst Mark Taylor maintained his $33 a share fair value estimate and said the market was overvaluing the stock.

“Ansell’s profitability improved in the first half, but we don’t think this is sustainable. We continue to expect pricing and volumes to normalise as supply eventually catches up with demand,” Taylor said.

Hearing implant maker Cochlear (ASX: COH) also reinstated its dividend to $1.15 per share on Friday despite a 6 per cent fall in underlying half-year profit and total revenue easing to $743 million but said it expected full year profitability to improve. Cochlear also announced it would repay $24.6 million received in coronavirus-related government support.

TWE's wine turns to water

Not all results this week were positive, with Treasury Wine Estates (ASX: TWE) reporting a 43 per cent slide in half-year net profit after the punishing weight of Chinese tariffs imposed in November.

That has prompted chief executive Tim Ford to pursue a split of the winemaker into three new divisions to give better focus to his luxury portfolio.

Morningstar regional director Adam Fleck maintained his fair value estimate of $11 per share and said he expects the company will prove successful in transitioning previously China-bound exports to other geographies.

Beleaguered casino operator Crown Resorts (ASX: CWN) also booked a huge first-half loss as Crown Melbourne—its largest revenue generator—remained closed for most of the period due to COVID lockdowns. Revenue plunged 62 per cent to $581 million but was held up by better than expected trading conditions at its Perth property.

Rival Star Entertainment (ASX: SGR) also posted a 33 per cent fall in net profit to $51 million given the impact of COVID restrictions and the lack of international tourists. Star’s VIP revenue was hardest hit, sliding 95 per cent during the half year.

Next week will be the last of this earnings season. Major companies we will be watching include:

  • NIB Ltd (ASX: NHF)
  • Costa Group (ASX: CGC)
  • Lend Lease Group (ASX: LLC)
  • Oil Search (ASX: OSH)
  • AdBri Ltd (ASX: ABC)
  • Woolworths (ASX: WOW)
  • Sydney Airport (ASX: SYD)
  • Qantas (ASX: QAN)
  • Seek Ltd (ASX: SEK)
  • Evolution Mining (ASX: EVN)
  • Zip Co Ltd (ASX: Z1P)
  • Harvey Norman (ASX: HVN)