Reporting Season
-Banyan Tree Research
In the past week, we entered our third week of Australian reporting season for August 2021. No doubt, the enduring impact of Covid-19 pandemic on financial earnings in the past six months will become clearer as Australian corporates announce confessions.
We are focused on deciphering:
(1) the quality of earnings – what is recurring and non-recurring earnings;
(2) the strength of corporate balance sheets; and
(3) valuations – i.e. what is the intrinsic value of companies in a post Covid-19 world. In this report, we reproduce commentary provided by our investment managers to date. Individual stock reports are available upon request.
- Telstra Corp (TLS) – Upgrade to Buy. Telstra Ltd (TLS) reported strong FY21, with management on the conference call with analysts declaring that the Company “had reached an important turning point in its financial performance and outlook…We delivered results in line with guidance… It represents a turning point in our financial trajectory. Our second half underlying EBITDA was up on the first half, and our guidance for FY22 underlying EBITDA is $7.0-7.3bn, which represents mid to high single digit growth. FY21 NPAT and EPS were up 3.4% and 2% respectively… our underlying business will return to full-year growth in FY22”. On the conference call, management also highlighted “we continue to execute on our T22 strategy with around 80% of our scorecard metrics completed or on track for delivery, and we are seeing the decision to be bold and transform the business for the future clearly paying off. Underlying fixed costs decreased by $490m or 8.1% bringing the total underlying fixed cost reductions to around $2.3bn since FY16. We remain on track to meet our cost out target of $2.7bn by FY22”. TLS also announced an on-market buyback of $1.35bn (post sale of part of Towers business), which should support its share price. We upgrade to Buy recommendation.
- Arena REIT (ARF) – Buy. Arena REIT (ARF) reported solid but as expected FY21 results. Net operating profit of $51.9m, was up +18.5% over the pcp, driven by growth in contracted annual rental growth and market rent reviews, acquisition of ELC properties and completed development projects. The result equated to EPS of 15.2cps, up +4.5% over the pcp. Management provided earnings guidance highlighting “FY22 DPS guidance of 15.8cps reflecting growth of 6.8% over FY21”. ARF retains a quality property portfolio, solid gearing position and has provided stable distribution guidance (which implies that ARF is well positioned to navigate the challenges posed by the pandemic). We maintain our Buy recommendation and remain positive on ARF’s attractive asset base and growing yield profile (FY22 distribution guidance could be on the conservative side.