Earnings guidance likely to fade away this decade; BSL, NEC, RDC, DOW, BLD

Earnings guidance likely to fade away this decade; BSL, NEC, RDC, DOW, BLD

At the backdrop of increasing uncertainty sparked by COVID-19 implications, Corporate world has been facing detrimental consequences, but China is coming back online gradually. Managers are withdrawing guidance as they experience material risks to the assumptions that are supporting near-term targets.

Nonetheless, the ‘beat and miss game’ in the markets may not be viable in this new decade, and you are likely to witness the ‘beat and miss game’ going out of markets. And it has already started, for instance - Domino’s Pizza Inc. has moved to medium term outlook, rather than short-term targets.  

Stalwarts like Jamie Dimon and Warren Buffet had given opinions on the short-term guidance, which they believe to be inappropriate. There are domestically-listed examples of medium-term outlook – Altium Limited (ASX:ALU) intends to clock revenues of half-a-billion US Dollars by 2025.

Increasingly, pockets of the corporate world are getting skewed towards long-term KPI based targets, and global companies like Tata Motors, BP have moved to this route. It is just that this trend is yet to become mainstream across the board.

In an interview on a TV channel, Warren Buffet said:

Let’s discuss some ASX-listed stocks with guidance withdrawals today i.e. 19 March 2020.

BlueScope Steel Limited (ASX:BSL)

BSL withdrew its earnings guidance in a note to the stock exchange. In February, the company had advised that the earnings guidance remains subject to market conditions, FX, spread as well as COVID-19 implications.

Earlier in February, it had noted that underlying EBITDA was expected to be similar to first-half, which was $302.4 million. Over the 2H to date period, it is said that business performance had been consistent with BSL’s expectations.

BSL added:

  • Australian demand has been robust owing to the building sector and distribution channel demand.
  • Building products, NZ & Pacific Steel had performed consistent with expectations.
  • Despatch volume and spreads had remained stable by North Star.
  • Its Chinese business is coming online consistent with business activity across the nation.

Moreover, BSL had taken this step in the wake of economic uncertainty and the existing environment.

On 19 March 2020, BSL last traded at $9.010, by falling by 4.149% from the previous close.

Boral Limited (ASX:BLD)

Boral has withdrawn its FY20 earnings guidance as a result of COVID-19 today (i.e. 19 March 2020), and gave an update on its plasterboard transaction.

Boral’s executive noted that the company has started to witness signs of impact by the COVID-19 in markets other than China, but significant deterioration in demand hasn’t been the case.

Although Boral expects that market conditions are likely to get worse as a result of precautionary measures to limit the spread of COVID-19, the impact on earnings could not be quantified presently. Also, it is limiting non-essential capital expenditure and discretionary spending in an effort to preserve cash.

Plasterboard transaction

In August last year, the company had executed an agreement with Gebr Knauf KG. Under the agreement, there was a provision to form an expanded equally-owned plasterboard JV in Asia, and that, Boral would have sole ownership of USG Boral ANZ business with Knauf having a call option to increase its stake to 50% within five years.

In today’s announcement, the company believes that the regulator is unlikely to approve the call option. Therefore, it would look for other options, which may require alteration to the agreement and necessary approvals.

On 19 March 2020, BLD last traded at $2.11, down by 10.97% from the previous close.

Downer EDI Limited (ASX:DOW)

Downer EDI withdrew its earnings guidance for the financial year 2020 as a result of COVID-19 uncertainty. Downer CEO, Grant Fenn notes that the company has a resilient balance sheet with solid liquidity and headroom in its bank covenants.

Fitch Ratings had confirmed the rating for the company’s Long-Term Issuer Default Rating and senior unsecured rating at 'BBB' Stable. On its debt maturity profile, it was noted $50 million would be repaid in the next 12-month period, which could be funded through existing facilities.

Mr Fenn stated that the services provided by the company are likely to remain in demand as its services are largely dedicated to public & critical infrastructure. Also, the company is undertaking steps to maintain critical service delivery amid existing uncertainties, and it is planning business continuity.

Besides, the company has been implementing cost control initiative across its business.

On 19 March 2020, DOW last traded at $3.260, down by 5.78% from the previous close.

Nine Entertainment Co. Holdings Limited (ASX:NEC)

Nine Entertainment reported that the assumptions made for expected topline at the time of the first-half result in February are not viable anymore. The Company is beginning to experience impact due to COVID-19, but the short-term impacts remain limited.

Its 3Q FTA ad revenues are tracking close to flat while overall results are in line with the Company’s expectations but forecasting ad revenues is becoming challenging and NEC has decided to withdraw the FY20 guidance.

At the same time, the Company’s audience in the key verticals remains resilient, and it is laser-focused in executive cost optimisation wherever feasible. Late in January 2020, the entertainment giant had refinanced its corporate debt facilities.

On 19 March 2020, NEC last traded at $0.970, slipping by 15.122% from the previous close.

Redcape Hotel Group (ASX:RDC)

RDC has withdrawn FY20 distribution guidance as well as distributable earnings guidance as a result of uncertainties backed by COVID-19. It was said that the group has resilient attributes to navigate through uncertain times.

The group has said that it would not be paying distribution pertaining to the March quarter, and the quarterly-distribution policy would be reviewed based on the trading conditions. To date, the business has performed consistently with the expectations of the management.

Further, RDC said there is no material evidence reflecting slowdown as a result of COVID-19, but the increasingly uncertain environment has led the group to suspend its distribution related guidance.

RDC noted that the business owns the majority of its assets and pays a little rent, and balance sheet and debt position remains strong with headroom of upwards of $80 million and gearing of 35.7% as on 12 March 2020. Also, its interest cover ratio at the end of last year was 4.65x, and debt facilities are expiring in September 2022 and September 2024.

On 19 March 2020, RDC last traded at $0.45, declining by 28.571% from the previous close.


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