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Earnings season's best and worst performers

Emma Rapaport  |  20 Sep 2018Text size  Decrease  Increase  |  
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stocks up and down

Software play WiseTech Global and financial services company FlexiGroup shone this earnings season while for G8 Education and packaging group Pact it was a rougher ride.

Overall, Morningstar head of equity research Peter Warnes said it was a pleasing results season for investors across the board, and was well anticipated by the market.

Average increase in earnings for the ASX 200 was about 9 per cent, the resources sector doing much better than the rest of the market up about 20 per cent. The ex-resources were up about 5 or 6 per cent.

We've pulled out a list of the stocks covered by Morningstar equity analysts that posted the biggest one-day gains (and losses) on the day of their results.

PERFORMERS

WiseTech Global (ASX: WTC)

1-Day Change: 27.24 per cent

Result date: 22/08/2018

Global logistics software provider WiseTech Global had a very strong showing at the 2018 financial full-year results, reporting a 44 per cent jump in revenue to $221.6 million in FY18, topping its upper guidance of 43 per cent growth.

However, Morningstar equity analyst Gareth James said he was "extremely surprised" by the market's reactions to the result and warned that the stock remains overvalued at current levels.

Morningstar equities analyst Gareth James said that in his 20 years as an analyst he had never seen a stock move almost 30 per cent without a corporate takeover or a major corporate announcement.

WiseTech Global is today trading at $20.50, a 230 per cent premium to Morningstar's $6.20 fair value estimate.

FlexiGroup (ASX: FXL)

1-Day Change: 26.72 per cent

Result date: 20/08/2018

It's been a bumpy ride for diversified financial services product provider FlexiGroup over the last few years. However, the company reported better-than-expected fiscal 2018 earnings and is more confident in its turnaround. Its improved outlook has prompted a material increase in its fair value estimate from $1.90 to $2.65 per share.

The company's fiscal 2018 underlying net profit after tax of $88.2m was at the top end of its guidance and better than Morningstar's forecast of $85.6m.

"We were concerned about the progress of FlexiGroup's turnaround following the recent surprise departure of Symon Brewis-Weston as its CEO, just at the point when the company's recent investments were expected to bear fruit," Morningstar equities analyst Chanaka Gunasekera says.

"However, the company's strong earnings update, including its stronger balance sheet, has alleviated these concerns."

FlexiGroup has since lost much what it had gained and is today trading at $2.02, a 23 per cent discount to Morningstar's $2.65 fair value estimate.

Magellan Financial Group (ASX: MFG)

1-Day Change: 14.33%

Result date: 9/08/2018

Magellan Financial Group reported a strong fiscal 2018 result driven by increased funds under management, and a subsequent 8 per cent increase in net profit after tax to $212m.

The strong result prompted management to increase the 2018 dividend by 57 per cent to $1.35 per share, which was well above market expectations and to raise the payout ratio.

"All this during what has been a busy, and not always smooth year for the fund manager," Morningstar director John Likos says.

Morningstar has increased its fair value estimate and at current prices, the stock is fairly valued.

Magellan is today trading on par ($27.92) with Morningstar's $28 fair value estimate.

NON-PERFORMERS

G8 Education (ASX: GEM)

1-Day Change: -16.53%

Result date: 27/08/2018

Shares in G8 Education fell sharply after the childcare centre operator reported a $25.6m in net profit for the first half of fiscal 2018, down 24 per cent from $33.7m last year.

Revenue was up 7.6 per cent across the group, largely on the back of childcare centres opened in fiscal 2017 and in the first half of 2018. Underlying earnings before interest and taxes of $48.1m was down 21 per cent from the same period last year.

The negative result fell short of Morningstar's expectations, though senior equity analyst Gareth James says G8's profits are generally weighted toward the second-half.

"With more operating leverage in the first half, this result makes it look a lot worse than it is," James says.

"The real question mark is what is going to happen to occupancy levels? It depends what will happen with the Child Care Subsidy scheme [which came into force in July 2018].”

G8 Education is today trading at $1.96 – a 44 per cent discount to Morningstar's $3.50 fair value estimate.

Pact Group Holdings (ASX: PGH)

1-Day Change: -21.91%

Result date: 15/08/2018

Industrial supplies company Packing group Pact delivered a soft result amid stiffer competition and challenging macroeconomic conditions.

Operating income in the Australian segment of $103m was 19 per cent below Morningstar's expectations of $128m, with resin price volatility, a 40 per cent jump in energy costs in the second half, and lost rigids volumes contributing to the weak result.

What’s more, group CEO Malcolm Bundey shocked the market in September by resigning after less than three years in the top job, causing a further drop in the stock price and stoking analyst concerns.

Morningstar has reduced its fair value estimate 8 per cent to $4.90 per share, reflecting the Australian segment's loss of volume and the near-term cost headwinds.
Pact is trading at $3.73 – 17 per cent discount Morningstar's $4.90 fair value estimate.

Five best and worst performing stocks on results day (1-Day share price change %)

Five best and worst performing stocks 2018

Source: Morningstar, Thomson Reuters

 

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Emma Rapaport is a reporter with Morningstar Australia, based in Sydney.

© 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 editorial manager for Morningstar Australia. You can follow her on Twitter @rap_reports

© 2021 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 'regulated financial advice' under New Zealand law has 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. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. 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.

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