Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

3 first-half results that surprised on upside

Glenn Freeman  |  21 Feb 2018Text size  Decrease  Increase  |  
Email to Friend

Beach Energy's (ASX: BPT) underlying net profit after tax (NPAT) of $93.1 million was up 5 per cent on the same period a year earlier--due in part to earlier-than-expected cost reductions and efficiency improvements from the $1.6 billion takeover of Lattice Energy.

The result was well ahead of Morningstar's $66 million forecast "due to lower than anticipated operating costs in the Cooper Basin," says senior equity analyst Mark Taylor.

Group earnings before interest, tax, depreciation and amortisation margin of 68 per cent before corporate costs beat his target, but "we retain our long-run 55 per cent EBITDA margin assumption, ahead of the 50 per cent 10-year average to December".

Taylor says first-half net operating cash flow was steady at $131 million--in line with expectations--"but free cash flow fell 28 per cent to a below-expected $75 million".

"Beach paid an as-expected fully franked first-half dividend of 1 cent per share, on a lower than expected 24 per cent payout, but on higher than anticipated earnings".
He notes this is the 17th consecutive year of dividend payments for Beach, "favourably out of step with most small- to mid-cap resource companies".

While noting greater efficiencies Beach has realised through lean well designs and moving rigs, he sees these as "maintaining competitiveness rather than improving it" and maintains his Morningstar's no-moat rating.

"Even with Lattice’s scale-enhancing incorporation…Beach does not become a low-cost hydrocarbon producer," Taylor says.

Recruitment

Jobs website Seek (ASX: SEK) booked a 21 per cent rise in profit to $102 million for the six months to December 31, prompted by a sharp jump in revenue, AAP reported earlier this week.

Sales revenue rose 27 per cent to $620.3 million, from $487.9 million a year ago when weak economic conditions in Brazil and South-East Asia hit the company's international division.
The international business division's revenue was up 12 per cent to $340.1 million--mainly due to increased sales from Chinese online recruitment provider, Zhaopin.

"This has emboldened us to continue investing and accelerate our efforts," chief executive Andrew Bassat said on Monday.

"If we execute well, we expect there will be significant upside given the large size of their addressable markets."

The company's Australian and New Zealand employment division delivered $196.7 million in revenue, 15 per cent stronger than the same period last year, driven by growth in advertising volumes, price increases and premium products.

According to Morningstar equity analyst Gareth James, this ANZ business performance was the key surprise from the interim result.

"To some degree, Seek’s ANZ business has benefited from the strong Australian economy in recent years, but the company has also invested and strengthened its economic moat, which has helped maintain its dominant competitive position.

"This is a testament to management’s ability to continue innovating and developing its offering," James says.

He also notes Seek’s other Asian business, Seek Asia--which comprises 19 per cent of group EBIT--is tracking "broadly in line with our expectations and still holds strong positions in several Asian markets".

"As usual, Seek’s balance sheet remains strong, and we expect net debt to be eliminated over the next three years, in part due to the capital-light nature of the business model.

"We aren’t concerned about the doubling in net debt versus the prior comparable period, as this largely reflects the movement of short-term cash holdings to noncurrent term deposits.

In response to the result, Morningstar's fair value estimate was increased 4 per cent to $18.30. At the share price of $19.60 at time of publication, James believes the shares are still overvalued.

Health insurer

Health insurer NIB Holdings (ASX: NIB) on Monday reported a 0.3 per cent dip in net profit to $70.9 million for the six months to December 31, largely due to $3.6 million in costs associated with its $155.5 million purchase of corporate health insurer GU Health.

NIB managing director Mark Fitzgibbon says the number of customers in NIB's core Australian resident's health insurance (ARHI) business grew by only 1.1 per cent in the first half of the financial year, down from growth of 2.1 per cent a year earlier, according to AAP reports.

However, the overall industry grew by only 0.3 per cent, and NIB accounted for about 36 per cent of that growth.

"It just highlights what a tough, soft market it is out there but how we continue to punch above our weight," Mr Fitzgibbon said.

"Household incomes aren't growing, and there's no shortage of competition in the market place," he said, noting NIB expects the number of its policyholders to rise by close to three per cent over the full year, less than the group's four to five per cent target.

Mr Fitzgibbon said the entire system growth of about 60,000 policyholders in the past calendar year was low.

Morningstar senior equity analyst, David Ellis says NIB "continues to impress with another better-than-expected financial performance as benefits from the diversification strategy start to pay off".

"A more buoyant outlook across the group, but particularly its fast growing 'partners' distribution strategy results in our 10 per cent increase in fair value to $6.20 from $5.60."
While noting that NIB "needs to ensure the current level of investment in the business does improve sales and productivity" and other metrics, Ellis says he is "confident it can manage the inexorable annual 5 per cent to 6 per cent annual increase in health care spending."

Industry consolidation is expected to gain pace and NIB is well placed to leverage its position as the fourth-biggest private health insurer.

With shares trading at $6.95 at time of publication, NIB is still regarded as moderately over-valued by Morningstar.

More from Morningstar

China's bond market largely untapped by foreign investors

• What you can learn from balance sheets, and what you can't

Make better investment decisions with Morningstar Premium | Free 4-week trial

 

Glenn Freeman is a senior editor at Morningstar.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend