5 Highlights from Reporting Season so far


In Australia we have two main reporting seasons, February and September. This is when publicly traded companies announce their half year (February) and full year (September) trading results to the market.

It is a good opportunity to review your investments and to consider whether your investment thesis still holds. It can also be a fascinating time as interesting stories about company situations always pop up.

Given we’re about halfway through the February reporting season, we thought we’d pull out five companies that have caught our eye thus far.


Despite increasing commodities prices, BHP report a lower net profit due to Trump’s tax cuts…

Confusingly BHP have announced a $1.8 billion impairment (loss) due to Donald Trump’s recent tax cuts. Given that Trump cut the corporate tax rate it seems strange that BHP’s profit was hurt by this. The reason is that the bulk of this $1.8 billion was foreign tax credits that can no longer be used and a re-measuring of deferred taxes. Essentially, because Trump lowered the corporate tax rate some of the tax credits BHP have are worth less than they were. At the end of the day, BHP CEO Andrew Mackenzie still says the company will benefit from these tax cuts in the long term.

Removing this one-off $1.8 billion impairment, BHP had a great set of results. On the back of strong commodity prices they lifted their underlying profit from $3.2 billion to $4 billion.

Seven West Media (ASX: SWM)

Seven West Media saw an 8x increase in profit despite revenue falling 10% – how!?

This result by Seven West Media, the operator of Channel 7, is a classic example of why you need to dig a little bit deeper to understand what the numbers are telling you. On the face of it Seven West saw their profit increase from $12 million this time last year, to $100 million – great, right?

It is, but the business is not doing 8x better. Instead last years $12 million profit was due to the company writing down the value of Yahoo7 and the streaming service Presto. Without those write-downs last years profit would’ve actually been $95 million.

So don’t think Channel 7 has radically turned it’s fortunes around with this 8x increase in profit. Instead what really happened was Seven West saw their revenue drop 10% this year from $900 million to $800 million while their underlying (without Presto and Yahoo7 write downs) net profit increased 5% from $95 million to $100 million.

That’s a little less flashy than a 8-fold increase in profits.

Wesfarmers (ASX: WES)

WES announces a 86.6% fall in net profit and yet, share price rises

In a classic example of how market movements can be confusing at first glance, Wesfarmers had a less than stellar result, and yet saw their share price rise. Wesfarmers is the conglomerate that owns Bunnings, Officeworks, Kmart, Target and Coles.

This fall in profit was driven by close to $1 billion in write-downs at Bunnings UK and $300 million at Target. It wasn’t helped by Coles profit falling 14% as well.

Yet despite this, investors expected the news to be far worse and so the price had moved down on the expectation of far worse news. When it wasn’t as bad as expected the market reacted by moving the share price up.

A2 Milk (ASX: A2M)

A2 more than doubles profits in the first half of FY18 and share price in Australia rises 30%

A2 had an excellent results announcement, with net profit more than doubling to A$92 million. This was driven by revenue increasing over 70%. The A2 story is still all about China and growing Chinese demand fuelled this result.

A2 also announced a long-term strategic partnership with Fonterra, the world’s largest dairy exporter. Fonterra will supply A2 with A1 protein-free milk and will support A2 in exporting to new markets. A2 looking for export markets outside of China is welcome news, given right now the Chinese market represents a large single-point risk.

Investors loved the news and the share price jumped 30% in one day of trading.

McGrath (ASX: MEA)

Things just keep getting tougher for the real estate company with a $25 million loss this half

Things have been tough for the real estate agent McGrath. After floating on the sharemarket at $2.10 a share in late 2015, shares are now trading at just $0.46. The company recently reported a loss of $25 million for the first half of 2018, which was slightly worse than investors already low expectations.

To make matters worse, The Agency – a rival real estate agent set up by a former McGrath employee – has now poached 30 of their agents. This is problematic as the key competitive advantage for a real estate agency is their agents.

One thing that wouldn’t surprise us with McGrath is if it returned to being a private company. Reports are that John McGrath and his close associates own about 40% of the company and it appears a real estate agency built on the personal salesmanship of John McGrath and his top agents may not be suited to the rigours of the public markets. Either way, it will be interesting to watch.

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