Corporate earnings week

With local macro data now out of the way – having seen the prints from the RBA, retail sales, Australia’s trade balance and the employment change inside five days last week – this week is all about corporate earnings.

Today sees corporate releases from UGL, JB HI-FI, GPT Group, James Hardie and the main event; Newcrest. The NCM result will signal the end of one its worst years in memory, as the plummeting gold price, ballooning costs and three guidance downgrades from its original forecasts saw the company lose 58% over FY13.

Today will see a preannounced $6.2 billion impairment charge being booked as asset right downs become actuals at Lihir, Hidden Valley, Bonikro and Telfer. This figure is just another forecasting blow, as the company stated on the 7th of June that the write downs would be $5 to $6 billion.

For NCM to get through today’s reporting announcement several key themes will need to be achieved, or at least show signs of improvement. Cash flow expectations are for a net debt effect of approximately $1.6 billion, having spent $2 billion on expansion project at Lihir and Cadia, while generating $510 million from operations. The market will want to see how this $2 billion has been spent and NCM would do well to outline how the ramp-up at both mines is progressing.

And finally, guidance; having had several major downgrades over the last year, guidance looks modest; the preannounced 2 to 2.3 million ounces of gold in June is expected to hold, however any move on this figure will be detrimental. This could be the last straw for investors who are tired of disappointment. Capital costs will also be a key part of guidance; any news of how the company is fairing with the cost reductions to Telfer, Bonikro and Hidden Valley will also be advantageous.

The other interesting release today will be UGL. UGL has a very strong mix of revenue streams, from a solid infrastructure portfolio to rail, engineering services and resource projects. It is widely expected today that UGL will signal the demerge of its infrastructure assets into a new listing.

The reasoning behind this change is sound; current valuations on UGL are skewed to the engineering and services side of the business, and after massive downgrades to the services side in May, the property listing should see a re-weighting to both sides of the business. This will be the first demerger this year where the demerging asset is the preforming asset rather than the other way around; having seen Brambles spinning out its Recall brand and Amcor its Packaging Distribution business.

DTZ will become the third largest property business of its kind behind global giants Jones Lang LaSalle and CBRE Group. Since UGL picked up DTZ for £77.5 million (approximately A$130.2 million) the division has gone on to the make up 33% of UGL’s earnings and should continue to grow at similar rates once it’s de-listed.

Moving to the open, we are calling the ASX 200 down five points to 5050 (-0.10%) as it follows the US global lead from Friday night trade. However, we saw on Friday that cyclical trade looks to be well and truly switched on. BHP's ADR is suggesting the stock should jump on the open, up 91 cents to $36.85 (+2.53%), and will lead the material sector higher with seven trading days till it reports. With earning season now the focus, stock picking should become clearer.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.