Need to Know | Australian Reporting Season + Listener Mailbag Stocks!

Candice: [00:00:04] Hello and welcome to talk money to me, your need to know financial podcast. Thanks for joining us. I'm Candice 

Felicity: [00:00:10] and I'm Felicity Thomas. And if you're new to our show, welcome talk. Money to Me is a podcast where we discuss various financial strategies, investable ideas, and we unpack the market and what you need to know right now. We also sit down with special guests now. This week, Candace and I are going to wrap up the Australian reporting season. 

Candice: [00:00:28] That's right. So we're in the final few days now of the Australian FY 22 reports, and there have been lots of upsets and misses in the markets of late. Some stocks, unfortunately, kind of falling off a cliff, so we're going to talk through a couple of those. And on the other hand, we've got companies absolutely killing it with expectations in their earnings upgrades. So they're enjoying a nice share price rally at the moment, and we will be chatting about those, too. 

Felicity: [00:00:52] So expect to hear in this episode the lowdown of the reporting season so far and a few of the bits of misses which have actually caught our eye. But that is in all,

Candice: [00:01:01] we sound like a game show, but that's not all that is more open the next door. We're also going to be chatting about the Ukraine and Russian war and provide insights into, you know, how to protect your portfolio in such volatile, uncertain times and also provide some key facts on companies that have come through recently in our mail, a listener bags. 

Felicity: [00:01:21] I feel like there's always volatile times going on, and we've just had Covid. We now have the war. I mean, when is it not going to be volatile times for us?

Candice: [00:01:28] Who knows? I think the million dollar question right there. I mean, volatility means opportunity to get in right. Correct. Now, before we get into all of that, I just want to clarify a few points from last week episode, which was our order pad. Magellan has kindly reached out just with a few clarifications, so I'm just going to read them out now for us all. Firstly, the Magellan Global Fund is commonly referred to as our Magellan flagship fund. The Magellan Global Fund has operated as an open ended unit class njoki since the 1st of July 2007 and has delivered eleven point seven per cent per annum relative to the benchmark at seven point ninety eight per cent.. Secondly, payout ratios are about capital management, not profitability. A company can still pay 90 to 95 percent of profits, regardless of whether its profits is $100 or $1, for example. Thirdly, in regards to fees, I neglected to mention that they also have an MFG Core Series fund, which that fee is 0.5 per cent, so half a percent in relation to that comment. And fourth and finally, as a it's a good reminder all of our content that we talk about on our show, the companies, everything like that. It's all backed by Sean Partners research and also UBS because we have a relationship there at Shriram Partners. And so in relation to Magellan, that was not a Magellan forecast, but rather it was Sean Partners and UBS Research forecast. Alright, so that's a great reminder that as always, our chat is not personal advice, even though we are registered financial advisers at Sean Partners. Please note that this podcast and the content discussed does not constitute this financial advice, nor is it a financial product. 

Felicity: [00:03:04] Okay, Candace. So I just want to provide some market context in terms of the index moves that we've seen before. We actually deep dive into reporting season. So in the last three months, the ASX 200 is down 5.2 per cent. The ASX 200 industrials is down nine per cent. The ASX small industrials is down thirteen point three per cent. Ouch. And the Nasdaq has actually retracted 12, with the US S&P 500 falling eight percent. So in a nutshell, we were already in retreat before the Russian invasion of Ukraine and before reporting season really kicked off both in the US and here. Now you might be asking yourself, why is that? When are we gonna get a break? 

Candice: [00:03:45] Well, some of the reasons and I guess the catalyst to the market pullback that we have seen since December 2021, I'm going to list them out for us all. So we've had obviously the Omnicom variant and the peak of infections around December January. Inflationary pressures and inflation has slowly been climbing since that period. The global slowdown in growth and GDP coming out of the like the booster Covid years we've had most commodity markets also have sharpened in recent months. So, you know, notably the oil price only in December, if we cast our mind back, the oil price was trading around 70 bucks us a barrel, and now it's just cracked through $100 a barrel. We've also seen hawkish pivots, so interest rate rise talks from pretty much all major central banks. Globally, we've had tightening conditions in the in the credit markets and financial markets, rising bond yields. And finally, we've had, you know, easing of fiscal and monetary policies. So QE quantitative easing has pretty much now dried up in all major markets, which has led to a massive amount of deficits globally for a lot of governments around the world. 

Felicity: [00:04:46] Now, if you want to know what hawkish means, go back to our modern Crabbe interview because he does actually go through what exactly that means. Now, basically Candace, in a nutshell, the end of 2021. Looking back at it now hindsight. A beautiful thing actually really set the stage for the share market so far in 2022. 

Candice: [00:05:05] Very much so. So now coming back to the Australian reporting season, we're probably about two thirds of the way through the reporting season in terms of market cap size of companies that have reported and more than about 50 percent by the number of companies that have reported so far. So we're seeing some trends emerge so far from reporting season. Generally speaking, they're quite positive. We did touch on these last week, so to reiterate these points again, firstly being market earnings expectations have actually revised up in terms of their profit guidance. So if FY22 earnings growth estimate for the ASX 200 is actually being pushed up by point five, so half a per cent over the last three weeks to thirteen point six, and this strength has really been led by the upwards divisions in the financials and energy sectors.

Felicity: [00:05:49] And the beat to miss ratio is four to three. So for every four companies that have based on their earnings, there has been three. That is me. So generally, that's pretty good. 

Candice: [00:05:58] Yeah, that's right. So now I'm actually just going to run through four of these stand out beats which have caught my eye. So firstly is BHP. This is one that's in our order pad and 

Felicity: [00:06:07] the only one in our order pad that is probably still doing very well at this point. 

Candice: [00:06:11] Yeah, exactly. And that's because if you look back at the report recently, they reported record profits and on a beat on earnings thanks to strong coal and iron ore prices of light. The group also surprised the market with a big drop to their debt levels, which meant a better than expected dividend. BHP is expected to pay back to shareholders $8 a buddy this year, which is roughly a 17 percent yield on the current share price levels. That's massive. So BHP has now rallied about 18 per cent since the 1st of December 2021. 

Felicity: [00:06:42] That is massive. So basically all your money in BHP would have been great. All right, now, we're not saying to you that, by the way, I don't definitely don't do that. What's next on the list? 

Candice: [00:06:52] So next is Temple and Webster heading into reporting season, the street was a little bit nervous about the growth outlook for the company. However, what we learnt customers are shopping more often and spending more. Plus, the company's supply chain diversity has really helped to see them through the worst of the omni cotton impacts. They didn't have as many bottlenecks supply chain issues as their competitors. For example, on the day of reporting, the stock was actually up 10 percent. Wow. 

Felicity: [00:07:18] And look, I believe during Covid everyone was looking at the furniture, getting very bored of it and saying, I want to do some furniture shopping. Did you do that? Yeah, I did.

Candice: [00:07:27] What did you catch it? 

Felicity: [00:07:28] All right. Well, I spy are a on your list. So can you tell me a little bit about that? 

Candice: [00:07:34] Arias area groups are realestate.com.au. Overall, it was a beat with a solid result year on year revenue growth of 37 per cent, which was a report of five hundred ninety million, an increase in Egbeda, which was up 27 per cent margin, and that was reported at 368 million. And finally, 31 percent increase in the net profit to 226 M.. So the report overall, yes, it was a beat. But given the market sell off that we've seen lately that we talked about with those indices, the share price of ARIA has actually pull back about 10 per cent in the past month. 

Felicity: [00:08:07] Interesting. So I mean, that could potentially be a good buying opportunity. 

Candice: [00:08:11] You never know. It may be the next one.

Felicity: [00:08:12] It could be. All right. I count three so far. What is your final pick? 

Candice: [00:08:17] So we were talking about how, you know, the energy sectors have done really well. My final pick is an oil company. Woodside Oil is the code on the ASX that had a cracker of a report. And here's some of the financial highlights for you and pat up 149 per cent underlying in pat up 262 per cent. 

Felicity: [00:08:34] And what about the operating revenue? 

Candice: [00:08:36] That was up 93 per cent, and they also declared a fully franked final dividend of 105 cents US per share. So that brings the full year dividend to a $35 per share. In addition, we've been seeing a lot of market news about the merger with BHP Petroleum Business and Woodside, right? So plus the massive oil price rally we have seen, this has really pushed Woodside share price up 14 per cent roughly in the last month. And if you had invested six months ago in Woodside, you'd be up about 44 per cent so far. 

Felicity: [00:09:09] Interesting. So energy companies are really proving to be the 22 winning investment, but might not sit well with everyone from an ethical standpoint. Now, on the other hand, we're actually seeing some weakness in consumer discretionary led by some softer results from Woolworths and Wesfarmers. So the consumer names are not as strong as people thought coming into reporting season. And in contrast, tilted towards energy and materials. 

Candice: [00:09:34] So can you run me through some of the companies that have missed the earnings? 

Felicity: [00:09:37] For sure. So we've got four on the list which have actually missed on their earnings and have now unfortunately fallen off a cliff in terms of their share price. So the first one is Appen. Now up into 2021 results missed expectations as well as guidance. Now, profits were down about 20 percent. Analysts believe the poor results have lowered investor confidence in the long run, and the lack of disclosures isn't helping. Either now the company indicated in its recent report that it will stop providing annual guidance figures and instead focus on a five year target to double revenue, which I think is sounding ambitious given the backdrop of slower global growth. Now, on the day of reporting, the stock was down 28 percent. However, I mean, where long term investors right potentially could be a good buy if they do actually reach those targets. 

Candice: [00:10:22] I mean, happens reaction on the day of reporting is just a good example of when you do miss expectations, you do get punished in the markets, right? 

Felicity: [00:10:30] That's it. Right. The second one is Blackmores now across the board. This was a milestone earnings mainly due to the China market being disappointment, which led to a 10 to 15 per cent reduction in future guidance. Now again, the day of reporting, the stock was down 10 and a half percent. 

Candice: [00:10:45] And number three 

Felicity: [00:10:46] is Domino's Pizza. Now we all love Domino's. The market was expecting great things for in pay after the year it had last year. A lot of people were eating pizza at home, but overall the first half net profit was down 6.9 percent and the stock was heavily sold off 14 percent on the day, it reported. Now, with highs of the hunt over 160 Dollars in the last year, now trading at $79, potentially this could be on the order pad as an opportunity. 

Candice: [00:11:12] We shall see and will actually be hosting Don, the CEO of Domino's, on the show in a couple of weeks time. So remember guys to send us an email if you've got any certain questions you'd like us to ask him. Our email is, as always, in the show notes below. All right, Felicity, the fourth and final. What is the last company? 

Felicity: [00:11:28] All right, this is a zip code now on the 28th of February. Zip released it a host of announcements, including the financial reports. Now what's taking centre stage is the acquisition of competitor Sezzle, which will be an all scrip deal, valuing Sezzle at 491 million with the current market cap 352 million. So they're actually paying quite a premium for their business, which they need additional capital for. Hence, they've just raised a sophisticated placement at a dollar 90 and when we opening a retail placement at a dollar 90. Now, in terms of the numbers, as per its previous update, things were not quite as positive for its earnings due to significant jump in the cost of sales. ZIP actually reported a 23 per cent decline in gross profit to fifty nine point one million and a loss after tax of two hundred fourteen point three million. Now, in the past 30 days, we've seen 33 per cent of value wiped off zip and a full of about 80 per cent in the past year. I mean, could this be an opportunity for the buy now, pay later sector? Or is it done? 

Candice: [00:12:26] Yeah, 100 per cent. I mean, all the buy now, pay later stocks are really kind of suffering and having a tough time at the moment. Hey. Alright. So they are some of the stocks that I guess shocked us or surprised us is reporting season. And also we're keen to hear your thoughts. Any companies that you follow, you're going, Wow, that was a great report. Or Ouch. Ouch. Not so good because there's just so many companies right out there that we can obviously report on here on top money to me, but we simply don't have enough hours in the day to do that. So these are the ones that just stood out to us the most so far. 

Felicity: [00:12:59] Yeah, definitely. Now with everything going on in the war in Ukraine right now. For context, we're actually recording on the 2nd of March. And obviously, this is an ever changing and developing situation. So please keep this in mind. There is a lot of market noise updates and data which we know can be overwhelming. So we want to give you our lowdown of what the war means for your investment portfolio and provide some investable ideas to help navigate the current market conditions. So stick around to hear more about this. We're just going to take a short break. So Candace, what is going on in the Ukraine is absolutely heartbreaking from a human perspective. But as we're in finance where they're going to focus on the financial impact. Now what we have here is a very rare situation where we do have slowing global growth, inflationary pressures in a rising interest rate environment, tightening financial conditions, Covid supply chain bottlenecks for businesses and now a European war. If you look back at this catalyst historically in the past, the data shows, is that the share market experiences increased levels of volatility and the returns are weaker. Sometimes this will result in an end to a bull hot market. Other times, it just puts the foot on the brakes of what's been a pretty strong acceleration. Now I know you're a bit of a history buff. Can you give us some context about the Russian invasion? 

Candice: [00:14:17] Definitely. I do love me some history, and one of the reasons why is that I think people just fascinate me. The past shows us that often the most influential people in the era can actually have such a lasting impact, whether it's positive or negative, which can really shape the modern world. And I do think we might be living in one of those moments right now with Putin's order to invade Ukraine. 

Felicity: [00:14:38] I mean, I was reading that the world is never going to be the same again. 

Candice: [00:14:41] That's a scary thought. Yeah. So really, the tensions that have been building between these two nations have been going on for a couple of years now. The two founding members of the old Soviet Union actually started their tensions back in February 2014, when protests in the Ukraine overthrew the president at that point in time, who was friendly to the Russian interests. So during that revolution, more than 100 people were killed in protests in the capital and the interim government that was subsequently set up after this kind of revolution really was was really pro-Western, and they eventually signed a trade agreement with the European Union that is seen as the first step towards the membership of the bloc. And then only a few months later in that year. So in April 2014, Russia then invades and annexes the Ukrainian peninsula of Crimea and to S.O.S. Regions within subsequently set up are probably going to pronounce this incorrectly. So I'm sorry if I've got any Ukrainian listeners, but the donkeys and the longest breakaway regions were formed. 

Felicity: [00:15:46] Your please send through how to actually say, though, is that we can play it in our next episode. 

Candice: [00:15:49] Yeah, that'd be great. So the annexe of Crimea in 2014 and the Swift five day partial invasion of Georgia in 2008 suggests, like the history books are showing us that Putin would probably prefer to limit the geographic scope and duration of the conflict that we're seeing now. You know, to a shorter period to limit the costs, actually. 

Felicity: [00:16:09] And look such quick and fast invasions may be sufficient to drive a wedge between the sanctions response of the US and EU. But I don't believe at this point that it's really working. 

Candice: [00:16:19] It's so hard to make a call on this, and it's not really our job to do that right. It's our job to protect clients wealth and look at the markets and to navigate this crazy time. And so Putin really has to remember that a large proportion of the Ukrainian population actually pro EU, so the Kremlin may struggle to gain or retain political power in Ukraine without open ended occupation of the capital and other large cities. Also, to the extent that the military goal for Putin, you know, it would be to strengthen his hand, potentially back at the negotiation table, you know, with Nate over maybe being so aggressive is actually going to undermine any future talks he may have. And this also kind of all builds up and suggests that, you know, we we aren't here to predict who's going to win what's right and wrong. But Russia's actions and consequences are clearly hanging in the balance, making the course of action more uncertain, a.k.a. that means I think we're in for a kind of turbulent short period of time in the markets.

Felicity: [00:17:14] Yeah. So it's really tricky for investors right now to navigate that. And our view is that you do need to be a little bit cautious, have cash on the sidelines so you can actually take advantage of these volatility, you know, picking up bargains for long term growth. We've said it before and we'll say it again. Having the right asset allocation for your risk appetite is key. Also, it's important to remember that inflation is actually a good thing for economic growth. It does help boost consumer demand and consumption. So it's not all bad. I think a tilt towards energy, financials, precious metals rates and consumer staples. 

Candice: [00:17:47] And to elaborate on that point, we also think investing into energy as it so happens if you're, you know, keen to do that from an energy perspective, it's a smart short term play with the Russian invasion as they one of the major oil supplies for the global economy. So energy can be seen as the poison in the cure. 

Felicity: [00:18:05] What do you mean by that, Jonah? Elaborate a little bit. 

Candice: [00:18:08] So what I mean by that is energy is actually causing a lot of the inflation pressures that we're seeing, and it's causing some of the imbalances in terms of the energy policy. So that's the poison pot. But it's also the cure in the sense that if you do have an exposure to an energy company in your portfolio or an ETF, you're actually going to be seeing the benefit of the oil price go up. So, you know. An oil producer like Woodside, for example, you can see it in results are having record profits because of this fact. So whether that's through fossil fuels, gas, coal or even uranium, it's definitely worth having a think about or chatting to your financial advisor about how do you have energy currently exposed your portfolios? 

Felicity: [00:18:48] Yeah. And if you're more ESG conscious, you can look at uranium, right? It's more of a clean energy source and there's a lot of great uranium picks. I've actually been through them on our Instagram. Now, if energy is not your thing, well, you can also invest into floating fixed interest securities, also known as hybrids. So they're half debt, half equity. And rather than buy fixed rate bonds, right? Because instead of buying bonds that are not linked to the cash rate, these will actually increase as interest rates rise. So you'll get a pay rise on that income return. So we hope you've got a few useful investable ideas which can help you navigate the current geopolitical and market conditions. I mean, I personally still have a large tech position and precious rare earth position, as I still believe the companies that I hold are where I'll make the most money over the long term, even though it could be slightly painful to look at my portfolio now. I try not to look at it as unless I'm looking at to top up my position. Now, coming into our final segment of this episode, we're actually going to answer some of your questions which have come through this week on our Instagram. We actually had time to answer five, but we'll answer the rest in next week's episode. 

Candice: [00:19:56] And also a quick reminder you can always send through us any questions that you may have via email at Tatem, at Equity Mates dot com or through our Instagram and our handle for that one is at Talk Money to Me podcast. 

Felicity: [00:20:08] So the first stock that I want to go through is Z I, which is on the ASX raise now. It actually reported on the 24th of February, with strong growth, passing the one billion Australian fund milestone. Now, if you haven't heard of Rice, which I'm sure you have, it's a financial investment platform now. Revenue is up 85 per cent to 8.7 million year on year. They've had a change of senior leadership and board to actually position for their next phase of growth. Their cash flow positive and they actually have been for the last nine quarters with $20 million on the balance sheet. Now the current price is around $8 20. And interestingly enough, there isn't much broker coverage on asset I. But what we do have is the consensus price target is $2. Four, so upside of 112 percent. 

Candice: [00:20:55] And the second one that's come through that it's one of our listeners owns is Penton at 5GHz, the code on the ASX. So that reported on the 17th of FIRB. And it looks like it's a strong result, with half year revenue up 67 per cent to eight million. Gross profit increased by 100 per cent love that, and the gross margin expanded by 49 per cent year on year. Recurring revenue for the network was in an increase of 66 per cent to 6.8 million. However, still the half year report net loss of three point three million, as it's relatively newly listed on the ASX only listed back in December 2020. So it has got significant IPO costs of about 8.7 million that they're washing through in the overheads and operating costs. So it's still very much in in its growth stage. It's an internet service provider business and interesting enough, we here at Shriram Partners, our research has coverage on Aussie broadband, which is a competitor and that has gone from strength to strength of light. They recently announced an interesting launch of GeForce Now, which is powered by Penton It, which is in a very premium, cloud based gaming streaming service who say that fast many times, but that is a really interesting move for that one. So the current price for 5G is about 43 cents. Consensus prices at $A 25. So upside of about 194 percent. 

Felicity: [00:22:17] Now our third stock was JLC again on the ASX John Lyng Group. Now this reported on the 22nd of February. Revenue is up to three hundred seventy one point three million, which is 34 per cent on the year. And profitable with a net profit of eleven point seven million, up 22 per cent on the year. Now, if you haven't heard of this business, it actually provides building and restoration services. So no wonder it's actually been doing so well. I believe over the last couple of years pays a little dividend two point seven cents per share for the interim, so approximately throughout the year, it should be about 0.7. Now, interesting enough, a lot of brokers actually cut the price target by one to three percent. So now there is a price target of eight point thirty five, with the current share price of seven point sixty. So upside around nine point eight percent, with an average rating being a buy across 

Candice: [00:23:09] the brokers and the fourth company to come through the list of mailbag is Matterport M2 on the Nasdaq. This business is a spatial data company focussing on digitising and indexing the built world well. So reported recently on the 17th of February, it only started trading on the Nasdaq back in July 2021. It reported a record year. You're in 2021, achieving total revenue of 111 million. That was actually up 29 percent on the prior year reoccurring subscription based business, that's what this business is all about that achieves 61 million. So that was up 47 percent. It's got a strong balance sheet, almost 670 million in cash and equivalents. Current price is around seven point forty one, and the price target over the next 12 months is fifteen point thirty three. So that's about upside of one hundred and seven percent.

Felicity: [00:23:59] Interesting. Another new one newly listed. And now we have the fifth and final stock for today. Sorry, guys. It's Laura. Now the code is AOL on the New York Stock Exchange, it reported earlier. And so February the third or fourth, and it reported a really strong quarter, with them beating expectations and guidance on all lines of the profit and loss. Really strong organic growth. Now, the Stillwater Company's shares have outperformed the industry in the past year. The company is actually really benefiting from their growing skincare business and gaining sales from its robust online presence as more consumers are shifting onto this model. Now, the impact of these upsides were reflected in the second quarter fiscal 2020 to where net sales increased year on year expected for ad revenue growth of around 15 percent. Current price is $296 or thereabouts and consensus price target is $357, so approximately 20 percent upside. Now, the average waiting is actually overweight for this one across the broken network. 

Candice: [00:24:59] So thanks again, guys, for those five stocks that have come through. We hope you got some more insights into those companies, like we said earlier, where you receive lots of stock requests, so keep them coming. We will address them the ones that we haven't had the chance to get through today in our next few episodes and also keep an eye on all of our social media channels because we'll probably address them there as well. 

Felicity: [00:25:19] That's it, and we've got a really amazing and exciting analyst coming on the show next week. He actually values SAS companies under his coverage, and it bring to us a few other really cool ideas. Now, I hope you enjoyed that episode, as always. Please remember, although Candace and I are financial advisors at Shaw and Partners. Please note our discussion today does not constitute a personal financial advice. As always, you should seek professional advice before making any financial or investment decisions. Make sure you follow us on at Talk Money to Me podcast for daily market updates. Until next time. See you 

Candice: [00:25:50] next time!