Will full-year earnings be up to scratch?

FY14 has been a very interesting year.  

ASX 200
Source: Bloomberg

We have almost perfect polar opposites in the first and second halves for the materials space; retail has seen sub-par sales updates, while banking and telecommunications continue to see sustained increases in growth (although in low single-digit ranges).

The most interesting sector to watch this earnings season will be energy, as three of the biggest players on the ASX, - Woodside, Santos and Oil Search - take substantially different growth profiles, though all have experienced rapid price growth.

With the ASX now at a six-and-half-year high after having breached the 5600 points mark, earnings season will be key to holding this level.

Key markets to watch this season:

Rio Tinto – half-year 2014, Thursday August 7

The major components of the RIO result will be the average iron ore price, the progress of the strategic restructuring program, further progress of the Pilbara from 290 to 360 million tonnes per annum and copper guidance from Kennecott and Escondida.

The consensus expectations for the results see revenue for the half at US$23.10 billion, with earnings per share at $2.33 and an underlying net profit of US$4.447 billion. Considering its last production release, Rio would be on track to reaching this figure; the question is, what was the average iron ore price Rio acquired considering iron ore generates 89% of Rio’s earnings?   

Commonwealth Bank of Australia - fiscal year 2014, Wednesday August 13

Once again CBA will be looking to release a record profit number for FY14; quarterly numbers in the back-end of the fiscal year showed that bad and doubtful debts continued to decline, increasing asset quality. Funding mixtures continued to be diverse and CBA was seeing strong growth in its wealth management division and stabilisation in institutional banking.

The consensus expectations see full-year revenue at AU$22.435 billion, with earnings per share at $5.26. Net-interest margins are expected to slide further in the second half of the year, seeing a collective result of 2.1%, down a further four basis points. However, consensus cash profit is expected to reach AU$8.639 billion, which would be a 10.5% increase year-on-year, with a full-year dividend of $3.97 meaning CBA shareholders could see a $2.17 final payment.

Telstra - fiscal year 2014, Thursday August 19

Telstra has now reached critical mass in the Australian market; mobile, broadband and bundle services are all at a level that has minimal growth upside due to saturation, meaning erosion from increasing competition is a real risk. Management has been at pains to express this by forecasting FY14 growth at 4% to 6%.

Telstra has been a yield-hunters dream, with a payout ratio of near 100%; over the year TLS has sold off several assets and now has an interesting dilemma; to invest the capital, or return the capital to shareholders. I see TLS investing it in its Asian strategy, however I would be surprised if it did hand back more cash in the form of a share buy-back or special dividend.

Consensus estimates for revenue are in the middle of the management’s band at AU$25.297 billion, with earnings per share increasing solidly over the year to AU$5.26. Underlying net profit is expected to hit AU$8.639 billion, with the final dividend expected to rise to 15 cents after having seen a half a cent rise in the first half, meaning TLS would pay a full-year dividend of 29.5 cents.  

BHP – fiscal year 2014, Tuesday August 19

The four pillars remain the key differential of BHP, and all four are seeing either stellar growth or fantastic optimisation. Iron ore, petroleum, copper and coal remain the key part of BHP’s operations and at the last production update records were seen at 12 projects, with group production up 9%. Prices extraction for copper and petroleum look rosy, and may offset a poor figure in iron ore; however what may also offset this is record output that could average out the lower prices.

Full-year revenue of US$67.987 billion is expected, which is only a 3% increase year-on-year; however streamlining, productivity and capex reduction are expected to see earnings per share jump 16.7% over the year to US$2.59. Underlying profit of US$13.855 billion is expected, however I believe that for the current price to be maintained, further guidance into expectations for FY15 and FY16 is needed as BHP navigates the change in price of iron ore.

Keep up-to-date with earnings season and potential trading opportunities

Evan Lucas will be reporting on major Australian stocks this earnings season using his equity matrix. You can see all the key company figures as they’re released, plus Evan’s analysis here.

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