Local earnings season kicked off 4 weeks ago, and so far almost half of JSE listed companies that have reported results, beat subdued market expectations. In-line with this, earnings downgrades have shown signs of respite in recent weeks. Some of the local earnings releases to take note of this week include:
- Bidvest (Full year results): The company guided for headline earnings per share (HEPS) to increase by between 4% and 6%, in-line with expectations (Bloomberg: +5.92%). This points to a decent result with growth in-line with consensus and similar to 1H17 (+4.4% y/y). The EPS number will include a fair value gain arising from an increase in the market value of associate companies Adcock Ingram and Comair.
- Cashbuild (Full Year Results): The group’s operational update for the year was weak, with top-line growth significantly below expectations. South Africa and Swaziland delivered solid revenue results, while other regions recorded negative revenue growth for the year. The group maintained 1H17 gross profit margin while operating expenses remained controlled. Management stated that trading conditions are expected to remain difficult for FY18.
- Sibanye Gold (Interim Results): Headline earnings per share of 79 cents in 1H16 is expected to deteriorate to a loss per share of at least 320 cents, down 1433% y/y. The decrease in earnings came on the back of non-recurring items and an appreciation of the rand versus the USD. Gold production declined 8% y/y to 688 600 oz., due to the suspension of operations at Cooke 4 during the 2H16, the impact of illegal mining at the Cooke Operations as well as lower volumes and grades from Beatrix West.
- Santam (Interim Results): In the company’s four months operational update, management stated that the net underwriting margin was the target range of between 4% and 8%, but was below the midpoint of 6%. Investment results were positively impacted by good performances by listed equity and active income portfolios, however returns on investment funds were in-line with 2016. FX differences had a minimal impact over the period. We expect the recent storms and fire losses in the Western Cape to impact the group’s underwriting margin for the interim period.
- RCL Foods (Full Year Results): In an recent trading statement, management said that HEPS will decline by between 30.1% and 40.4%, worse than market expectations (Bloomberg consensus: -27%). The result was impacted mostly by one-off charges including impairments of R123.8 million in the Chicken business due to redundant plant and equipment. Normalised HEPS is expected to increase by between 0.3% and 16% due to the improvement in the Sugar business and a turnaround in the Millbake business. Most divisions would have benefitted from lower grain prices and a less demanding base.
- SuperGroup, Growthpoint Properties, Hyprop Investments, Assore and Impala Platinum will also report results next week.
- Woolworths (Full Year Results): In its July operational update, management said that HEPS would decline by between 5% and 10% y/y, with the mid-point of this range falling behind expectations (consensus: -4.9%). Top-line performance (+3%) came in better than expected as Politix lifted the overall number in Australia. Real organic growth deepened into negative territory and it seems as if high income consumers in South Africa are now also facing a crisis of confidence, which was not the case in previous downturns.
- AdvTech (Interim Results): HEPS are expected to increase by between 4% and 7% y/y. Excluding litigation costs and other corporate action costs, normalised earnings per share is anticipated to grow by between 20% and 25%. While normalised growth has slowed down compared to the prior period, these numbers have surprised to the upside and point to a robust operating performance.
- Tuesday marks the last day to trade in AECI, Hammerson PLC, Indluplace, Liberty Holdings, Novus and Resilient to receive their most recently declared dividends. These counters will trade ex-dividend on Wednesday. Long4Life, PPC, Reinet, Mr Price and
- Stefanutti Stocks will host AGMs next week, while Datatec will host its GM on Wednesday regarding its Westcon-Comstor – SYNNEX transaction.
Whilst another quiet week is expected in the US, a few companies are will still report including multinational consumer electronics corporation Best Buy, one of the largest American-owned companies in the spirits and wine business Brown-Forman, and American variety stores chain Dollar General. Bloomberg is guiding for positive earnings growth from all three counters with Best Buy (+10.3% y/y) and Dollar General (+21.3% y/y) expected to report double digit growth.
In Europe, the focus will likely be on several French counters including telecommunication services group Iliad SA and multinational mass media conglomerate Vivendi. Based on Bloomberg estimates, both companies are expected to report solid double digit earnings growth and positive revenue growth for the fiscal year. According to Bloomberg Intelligence, double-digit organic growth from Vivendi’s music segment and the possibility for stabilising trends in pay-TV is likely to result in a stronger second half.
In the Asia Pacific region, investors will keep a watchful eye on China’s banking sector as China Construction Bank and Bank of China prepare to release second quarter results. Bloomberg is guiding for full year growth of 3.3% from China Construction Bank and 4.4% from Bank of China, a stronger reading compared to the previous year. Research from Morgan Stanley suggests that Bank of China shares are likely to appreciate over the next two months on the back of improving asset yields given that industrial profitability growth is expected to stay at healthy levels despite moderate GDP growth. According to the JP Morgan Earnings Tracker, second quarter results were generally upbeat globally with more than half of the companies within each region beating expectations (US 78%, Japan 68% and Europe 58%). Whilst 2Q EPS growth was lower compared to 1Q, the reading was still amongst the highest over the last two years. The strongest growth for the season was recorded in Japan (+22%) followed by Europe (+13%) and the US (+9%). Looking ahead, whilst a marginal slowdown is expected during the second half of the year, global earnings are likely to deliver double digit growth for year according to MSCI World estimates – a first since 2011.
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