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Finance week ahead: Oil and gas profits under the spotlight
Friday, 12 Feb 2016 14:07:16 | Stephen Letts
The Karratha Gas Plant, located 1260 kilometres north of Perth, Western Australia, and where LNG, domestic gas, condensate and LPG is produced, August 2011. (ABC News: AM)
Despite the nerve wracking volatility swamping the market, corporate Australia's reporting season so far has been rather routine, even pleasantly humdrum.
So far around 20 per cent of the market has trotted out results and nothing much alarming has emerged, although solid top-line earnings growth remains elusive.
On the calculations of Citi's quant team, 56 per cent of results have been in line with expectations, 20 per cent have beaten earnings per share forecasts and 24 per cent have disappointed.
Wednesday and Thursday represent the frantic peak of activity, with nearly 40 of the bigger companies reporting.
Telstra (Thursday)
Telstra should roll out the biggest number of the week, a half-yearly profit of around $2.2 billion.
That would represent a 3 per cent increase in profit, and would perhaps be enough to support another increase in dividends, which had until recently hardly budged at all for years.
While we are continuing to consume ever larger volumes of data, increased competition in the telco market – playing out as higher data allowances and lower excess data charges – will keep a lid on the all important average revenue per user metric.
Increased competition may also see Telstra lose share in the mobile market to smaller players offering cheaper deals.
Deutsche Bank is forecasting a 1 per cent fall in mobile revenues to $5.3 billion, which will be primarily driven by a decline in the sale of handsets.
But Telstra has a massive ace up its sleeve, the NBN rollout.
The rollout is gathering pace and if Telstra holds its dominant market share, NBN income could jump by almost 60 per cent to be in excess of $600 million.
The other big growth driver is Telstra's network applications and services division which is on track to report a 40 per cent lift in sales to $1.4 billion, with reasonably healthy margins of 7 per cent.
CSL (Tuesday)
CSL seems to immune to market disappointment, an affliction affecting large swathes of the ASX.
It churns out oceans of plasma and vaccines and every so often drops a groundbreaking new therapeutic product into the mix.
It is also one of the few Australian companies that could be legitimately called a global champion.
A price increase in the US should help CSL meet its profit guidance of 5 per cent growth and half-yearly result of around $900 million.
Its quarterly reporting has moved in line with consensus forecasts, so a disappointment this time around is – as usual – unlikely
Woodside (Wednesday), Origin (Thursday), Santos (Friday)
The rewriting of oil and gas sector balance sheets - and ultimately financial statements – will make for pretty grim reading.
The big theme across the energy sector may well be large impairments and reserve downgrades as the companies reset their price decks.
Origin for instance calculated its forward guidance on a price of $US54 a barrel, while Santos conceded in its fourth quarter production report its heroic price assumptions would probably need overhauling.
Last month Woodside flagged impairments in excess of $US1 billion and BHP Billion warned of a $US2.7billion write-down on its shale assets in the US.
Woodside's full-year underlying profit is likely to be more than halved from $US2.6 billion to around $US1.2 billion.
A focus for investors will be an update on the final investment decision on the big – but risky – Browse project and given the failed tilt for Oil Search, whether Woodside is still prepared to try and buy growth at current bargain prices.
Origin – which has a handy hedge in its utility business – should also see half-yearly profits cut in half, down from around $350 million to $170 million.
Santos is right in the firing line of reserve and asset write-downs given its current high price assumption.
This is likely to hit its bottom line hard, with underlying full-year profits forecast to tumble from $500 million to little more than $100 million.
It is worth noting, this time last year – well before the current market capitulation – Santos reported a net loss of $935 million thanks to $1.6 billion worth of impairments.
AMP (Thursday), Bendigo and Adelaide Bank (Monday)
AMP is forecast to produce a full-year underlying cash profit of $1.1 billion which would represent a flat outcome on last year's effort.
The wealth protection business has seen swings and roundabouts relating to life insurance, but the second half of the year should be an improvement on the first.
Wealth management is still AMP's biggest business and investors will be looking for details about margins, net flows of funds and the cost cutting program.
Bendigo and Adelaide is expected to a flat half year cash profit of around $215 million.
APRA data points to weak lending growth, while good conditions – outside mining – may see a further cut in already low bad and doubtful debts.
Its regional peer the Bank of Queensland recently warned about tighter margins and cost of funding, so this may be an issue for Bendigo Bank investors as well.
The interim dividends are expected to be maintained at 33 cents per share
Unemployment should stay at two-year lows
Not much grist for the macro mill this week with jobs data (Thursday) the main interest.
The labour market has been surprisingly – some would say suspiciously – strong with more than 300,000 new jobs created last year, while unemployment is parked at two-year lows.
Nothing should change much in the ABS's latest offering with the market and job ads data pointing to another 20,000 being put on last month.
Offshore is a bit more interesting, with the Fed releasing the minutes from its last meeting (Wednesday), while US industrial production, producer prices and housing starts are out as well (all Wednesday).
China emerges from its Lunar New Year festivities with important trade figures (Monday).
While the surplus will again be large, the worry is that falling imports and exports will point to an ever softening domestic economy.
Another decline in producer prices (Thursday) would not be good news either.
Diary notes
Australia
| Monday 15/2/16 | New car sales | Jan: Motoring along, up 2% yoy |
| Tuesday 16/2/16 | RBA board minutes Lending finance | Hold reaffirmed, but looking for a hint of more easing Dec |
| Wednesday 17/2/16 | ||
| Thursday 18/2/16 | Unemployment | Jan: Bright spot in the economy, jobless at 5.8pc |
| Friday 19/2/16 |
Corporate
| Monday 15/2/16 | Aurizon Newcrest Bendigo & Adelaide Bank | Int: Mining downturn likely to weigh heavily Int: The recent quarterly update showed an improvement, gold price helping sentiment Int: Flat interim profit of $215m forecast |
| Tuesday 16/2/16 | Challenger Financial CSL Mondelphous | Int: Profit of $180m forecast Int: Solid $900m ($US640m) profit forecast Int: Mining services not a happy place to be |
| Wednesday 17/2/16 | Coca Cola Amatil IAG
Lend Lease Woodside Petroleum NAB | FY: Supermarket sales weak, 5 pc profit rise tipped FY: Earnings growth tough, likely to hit by disaster claims and low investment returns Int: Strong first half pipeline, $350m profit tipped FY: Underlying profit down 50pc to $1.2b Qtr update: CBA result gives hope of a good number |
| Thursday 18/2/16 | AMP Origin Energy Telstra | FY: Still challenging times, flat $1.1bn profit expected Int: Not going to be pretty, impairments the key Int: $2.2 billion for 6 months work, not bad |
| Friday 19/2/16 | Fairfax Santos | Int: Flat result around $85m OK, surely no more writedowns Int: Adopt brace position |
Overseas
| Monday 15/2/16 | CH: Trade CH: New loans JP: GDP US: Markets closed | Jan: Big surplus but composition more important Jan: Likely to be lower Q4: Preliminary read but contraction expected Presidents' Day |
| Tuesday 16/2/16 | UK: Inflation | Jan: Around 0.2% |
| Wednesday 17/2/16 | US: Fed minutes US: Industrial production US: Producer prices US: Housing starts | Further insight into the Fed’s thinking Jan: Down around 2% yoy
Jan: Going backwards Jan: Likely to be up around 2pc mom |
| Thursday 18/2/16 | CH: Inflation CH: Producer prices EU: Current account JP: Trade | Jan: Below 2% Jan: Down nearly 6% at last reading Dec: In surplus Jan: Likely to have swung into deficit |
| Friday 19/2/16 | US: Inflation | Jan: Last reading core inflation 2.1% headline rate 0.7% |
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