3 stocks that are shining bright this reporting season - CBA, JBH, CGF

  • Feb 18, 2020 AEDT
  • Team Kalkine
3 stocks that are shining bright this reporting season - CBA, JBH, CGF

With the ongoing earnings season, there is heightened interest in the respective performances of various organisations with a hope that positive results will act as a booster for the Australian markets.

Historically, it has been seen that corporate earnings that exceed consensus estimates tend to improve the mood of investors which is reflected in growing returns from the indices. The US, for one, has seen such a trend with the major US indices reaching record highs in January driven by notable financial results of companies including Apple Inc., Microsoft Corporation, and Tesla, Inc. among others.

Let us look at three stocks that have been the icing on the cake this earnings season:

Commonwealth Bank of Australia (ASX:CBA) 

Commonwealth Bank of Australia is one of the largest banks in Australia and operates in multiple geographies including Australia, New Zealand, Asia, the United States and the United Kingdom. CBA is Australia’s largest lender that offers integrated financial services comprising of retail banking, institutional banking, funds management, investment, broking services etc.

Statutory net profit after tax rose 35% in first half 2020:  CBA announced its H1 FY2020 results on 12 February 2020 with the company reporting a 34% rise in the statutory net profit after tax (NPAT) at $6,161 million, that includes $1,688 million worth of profit gained from the sale of CFSGAM. However, the bank’s cash NPAT fell by 4.3% to reach $4,477 million. The company had posted a cash return on equity (ROE) of 12.7% for the period.

CBA’s operating income was almost flat at $12,416 million, though it rose 3.5% sequentially. There was a 1.7% increase in the net interest income on the back of a growth in volume in the bank’s core businesses and due to stable Group NIM. The company had expanded its NIM by one basis point on H2 FY2019 to 2.11% as the bank got the benefit of lower basis risk and rise in asset pricing, which was however offset by the reduction in deposit and capital earnings on the back of the lower cash rate. The bank’s operating expenses during H1 FY2019 was up 2.6% to $5,429 million driven by an increase in wages and an increase in IT risk and compliance costs. Further, for H1 FY2020, the bank’s leverage ratio stood at 6.1% and 7% (internationally comparable). CBA’s Level 2 CET 1 capital ratio stood at 11.7% for H1 2020, which was above APRA’s requirement.

CBA stock was trading at $89.895 on 18 February 2020 (at AEDT 03:16 PM), an increase of 0.486% over the previous day’s closing price. The company’s P/E ratio stood at 15.610x, and the annual dividend yield was 4.82%.

H1 FY 20 Financial Performance (Source: Company Reports) 

JB Hi-Fi Limited (ASX:JBH)

Melbourne-headquartered JB Hi-Fi Limited is a leading company in the home entertainment retail segment & and consumer electronic products. 

Positive comparable sales growth across all three divisions in H1 FY2020: For the first half of FY2020, JBH reported a 3.9% increase in the total sales at $4 billion, 8% increase in the EBIT to $255.6 million & 8.9% growth in the net profit after tax (NPAT) to $174.4 million with 6.6% increase in Statutory NPAT to $170.6 million.

During H1 2020, for JB HI-FI Australia, there was a 5.1% growth in the total sales to $2.72 billion, with a 4.4% increase in comparable sales. For JB HI-FI New Zealand, there was a 0.8% growth in the total sales at NZ$132.8 million, with 0.8% increase in comparable sales. The Good Guys division reported a 1.5% growth in total sales at $1.15 billion, with a 0.6% increase in comparable sales.

In January 2020, the company delivered an increase in total sales growth for JB HI-FI Australia to 6.5% from 3% in January 2019 and posted a rise in comparable sales growth to 6.0% from 1.5% in January 2019. JBH had a total sales growth of 1.4% for The Good Guys compared to 1.8% in January 2019, and an increase in comparable sales growth to 1.4% compared to 0.3% in January 2019. The company witnessed a reduction in negative total sales growth for JB HI-FI New Zealand of -1.6% compared to -1.8% in January 2019, and negative comparable sales growth of -1.6% versus 4.1% in January 2019.

For fiscal 2020, the company expects the total sales to be circa $7.33 billion, in which JB HI-FI Australia is expected to post sales of $4.93 billion, JB HI-FI New Zealand (NZD) is expected to generate sales of $0.24 billion and The Good Guys is expected to contribute sales of $2.18 billion. Fiscal 2020 total NPAT, pre-application of AASB 16, is projected to be in the range $265-$270 million, which reflects the growth of 6.1% to 8.1% on the pcp. The company has declared an interim dividend of 99 cents per share fully franked, which will be paid on 6 March 2020. This represents an increase of 8.8% from the pcp and represents 65% of Pre AASB 16 NPAT.

JBH stock was trading at $41.200 on 18 February 2020 (at AEDT 03:16 PM), a decline of 0.483% over the previous day’s closing price. The company’s P/E ratio stood at 18.270x and the annual dividend yield was 3.62%. 

Challenger Limited (ASX:CGF) 

Challenger Limited is an investment management company that offers financial solutions for retirement. 

Group AUM rises 10%, company on track to reach guidance range of FY 2020 normalised net PBT: CGF reported an increase of 10% in group AUM to reach $86 million. The company is on track to achieve fiscal 2020 target of normalised net profit before tax in the range of $500 million to $550 million and projects that it will be at the top end of this guidance range. Challenger also plans to achieve its normalised return on equity target as it expects RBA cash rate to be more than a margin of 14%. 2020 dividend is anticipated to remain unchanged compared to FY19 at 35.5 cents per share.

For the first half 2020, normalised net profit before tax increased by 3% compared to pcp to reach $279 million. However, the normalised net profit after tax has declined 4% on the pcp to $191 million on the back of a higher effective tax rate. Statutory net profit after tax increased by $214 million to $220 million during H1 2020. The company posted a normalised pre-tax return on equity at 15.2%, which are 30 basis points above the target of the RBA cash rate along with a margin of 14% announced previously in June 2019.

Moreover, during H1 2020, in Challenger Life segment, the company delivered a 15% increase in the total Life sales to reach $3.1 billion. This was on the back of substantial contribution from Challenger’s Japanese partnership and Australian institutional sales. However, the growth was offset by lower domestic sales, which got affected due to ongoing industry disruption.

FY 20 Outlook (source: Company Reports)

CGF stock was trading at $10.230 on 18 February 2020 (at AEDT 03:16 PM), an increase of 0.393% over the previous day’s closing price. The company’s P/E ratio stood at 11.820x and the annual dividend yield was 3.48%.

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