BHP – Valuation & Technical Review
BHP FY17 revenue is expected to be $40b, EBIT of $12b and reported profit of $7.5b.
The earnings translate into EPS of $1.40 and DPS of $0.78 placing the stock on a 3.8% yield.
AMP – Earnings Outlook
AMP FY16 normalised profit $486m. AMP announced a $500m on market buyback.
FY18 reported profit is likely to remain flat on FY17 numbers and AMP’s ability to deliver against cost out in FY17 and continued cost discipline in future periods is the key to sustaining group EPS growth.
FY18 profit is likely to remain in the range of $900m – $930m, EPS $0.35 and DPS of $0.29 placing the stock on a forward yield 5.7%.
We remain cautions on AMP until the technical picture becomes more supportive. Support may begin building above $5.00.
CIM reported FY16 NPAT
CIM reported FY16 NPAT of $580m, slightly ahead of consensus.
We like CIM’s leverage to the infrastructure space and the recent acquisition of UGL is a positive.
Over the course of FY18, we see revenue at $17b, EBIT $1.b, EPS $2.30 and DPS $1.30, placing the stock on a forward yield of 3.5%.
RIO delivers a solid 2016 result
RIO has delivered a solid CY16 earnings result of US$5.1b. A highlight of the result was the increased shareholder returns, with RIO announcing a final dividend of US$1.25ps
Revenue of US$35b, EBIT of US$7.8b and DPS of US$1.70 placing the stock on 3.3% yield.
Looking out over 2017, we expect a relatively flat market for iron-ore prices which will translate into only moderate EPS gains for RIO (5-10%). We assume revenue of US$38b and EBIT at US$9.5b, EPS $3.20, DPS US$2.50, which will place the stock on a forward yield of 4%.
Share buy backs and capital returns will help underpin the story here with RIO.
We see both RIO and BHP fully valued at current prices. With short term volatility likely ahead for Iron-ore prices, we recommend taking profits or selling covered calls to enhance the yield.
CAR Reported 1H EPS
CAR Reported 1H EPSg of 5%, is the current 22x P/E sustainable?
Assuming an acceleration from 5% EPS growth to 10% EPS (big ask) in the next 12 months it will place CAR on a 3.5% yield. We’ve seen other high PE stocks negatively rerate such as TPG and I think some caution and close watching of the earnings trend in CAR is required.
Global tech players such as eBay, gumtree, facebook etc are becoming more active in CAR’s business space. This may be part of the reason EPS growth is dropping off.
XJO – Index Update
The XJO is holding support at 5600 points and maintaining a bullish short-term price structure.
We’re cautious due to stretched equity valuations, political risks in the Euro zone, debt stability in China and low revenue growth in many industry sectors.
To mange these concerns we’ve tilted portfolios to defensive assets and become aggressive with our covered call overlay. The bulk of our portfolio returns will come through dividends and option premium over the next short while.
Furthermore, we’re just not convinced the reflation trade the market has positioned around, will actually materielize in FY17.
MQG re-affirmed full year guidance
Macquarie re-affirmed FY17 earnings will meet market expectations. This places FY17 revenue at $10.3b and cash earnings flat on FY16 at $2.1b.
FY17 EPS will be $6.10 and DPS $4.30, placing the stock on a forward yield of 5.3%.
We see Macquarie tracking sideways at best and downside risks increasing from a pickup in macro volatility.
IAG – Bounces Off Support
We highlighted in this month’s video report that IAG would likely find support at $5.50. The stock has since traded down and tested the $5.50 range and buyers have pushed the stock back to $5.80.
We see a place for IAG in portfolios based on FY17 earnings of $900m, EPS $0.36 and DPS of $0.32 which places the stock on a forward yield of 5.5%. We compliment this with a tight covered call option to increase the cash flow to 12% on an annualised basis.
$6.00 remains resistance and we don’t see the stock trading above this level in the short term.
Note: IAG has implemented an optimisation program that will reduce gross operating costs by an annual run rate of at least 10%, or $250m by the end of FY19.
Banks – BEN 1H17 Earnings Update
BEN will report 1H17 earnings on Monday the 13th. We’re expecting 1 – 4% growth on the same time last year. Full FY17 forecast profit should be around $450m.
In general, across the bank names we expect margins and credit quality to be the key areas of focus at the upcoming results. Benign credit growth conditions underpinned by slowing housing credit & flat growth in business lending.
Highly leveraged household balance sheets and ongoing pressure from the regulator to improve the quality of housing lending, should restrict the growth outlook into FY18.
NAB – Q1 Profit
The National Australia bank (NAB) announced that Q1 profits have dropped 1% to $1.6 billion and rising staff wages and increased redundancy costs diluted the bank’s earnings.
In an update this morning, NAB reported revenue increased by 1%, but expenses, including a 5% pay rise for staff, grew faster. The bank said the rise in staffing costs was mainly due to a new enterprise agreement that came into effect in October and redundancy payments to staff who left the bank.
US banks rallied on Friday night which is helping to support our local bank names today. We give the bounce the benefit of the doubt but a break below recent support levels will likely see another 5 – 7% correction to the downside.
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