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The financial performance of a company has a significant influence on the investment decisions of an individual. Thus, with the ongoing earnings season, investors are focussed on the financial results of companies of their respective interests. The results help the investors gauge a company’s performance with respect to market expectations. Also, the outlook provided by the individual companies aids the investors understand where the companies are headed in the future.
Even while conducting fundamental analysis, it is imperative to assess key financial indicators, both general and industry-specific. This makes it vital for an investor to keep an eye on the results release dates.
In this article, we will look at the latest financial results of two stocks from different sectors: BGA from consumer staples, and RFF from the real estate investment sector.
BGA’s revenue rose by 14 per cent
A consumer staples company, Bega Cheese Limited (ASX:BGA) has a wide range of products & services including cheese, spreads, grocery, bio-nutrients and contract manufacturing.
Subject to a transition to BGA’s new ERP System, the Company rescheduled the release date for its half-yearly results for the period ended 29 December 2019. Due to this delay, the Company had requested the ASX on 27 February 2020 to halt the trading of its shares until further notice.
As a result of the transition, the Company made some adjustments to the FY2019 results and stated them in the interim report. However, there was no impact on the P&L statement of 1H FY2020 and earnings in FY2020 which was earlier announced on 29 October 2019.
The results for 1H FY2020 were released 02 March 2020 with the Company mentioning that in its fiscal year results ended 30 June 2019 the costs of sales were miscalculated. This has led to inaccurate statement of trade & other payables worth $9 million (understatement) and inventories of $1.5 million (overstatement). Critical changes in particulars of financial performance and consolidated balance sheet of FY2019 annual report are mentioned below:
In FY2019, Bega Cheese continued its diversification strategy with the closure of the Coburg cheese facility in suburban Melbourne and the acquisition of the Koroit dairy facility in Western Victoria.
The Company’s interim results witnessed an increase in revenue to $741 million, an increase of 14 per cent or $92 million. Also, a notable increase was seen in the export revenue, which grew by 17.3 per cent to $230 million, contributing 31 per cent of the total revenue.
While analysing the revenue by product category, Dairy consumer packaged goods contributed the highest with 44 per cent, followed by Dairy and other ingredients (32 per cent), Spreads and other groceries (16 per cent) and Nutritionals (8 per cent). BGA mentioned that there was a growth in pricing in the categories mentioned above, except Nutritionals. Another rationale for the increase in revenue pertained to the impact of Koroit ownership during the six months.
Regarding Nutritionals, the company mentioned that it was growing its product portfolio in this category by developing new nutritional business, including goat infant formula. Also, BGA plans to expand its customer size in export markets, including Indonesia.
Statuary EBITDA stood at $39.3 million, a slip of 1 per cent compared to pcp whereas statutory PAT grew by 71 per cent or $3.5 million compared to pcp. Impacted earnings in 1HY20 accounts to a significant drop in the earnings from the Tatura Milk segment due to lower demand for Chinese infant formula. The Company also highlighted that in Northern Victoria, there was a reduction in milk supply and margins in the dairy industry.
Other key parameters from the results:
- Normalised EBITDA decreased by 16 per cent compared to pcp, from $57.9 million to $48.5 million.
- Normalised PAT was $15 million, a dip of 21 per cent or $3.9 million compared to pcp.
- Working capital was $177.8 million, a dip of 53 per cent compared to pcp.
- Net debt decreased by 35 per cent compared to pcp to $303.4 million.
- Total production declined by 10.4 per cent to 154,456 tonnes. Also, direct supply and toll milk processed decreased by 4.6 per cent.
- Banking facilities have been extended, and leverage ratios increased from 3.00 times to 3.75 times (from December 2019 to September 2020).
Dividend distribution: BGA declared fully franked interim dividend of 5 cps which represents a distribution of $10.7 million to be paid on 03 April 2020.
Earnings Guidance - FY2020
BGA’s Group reaffirms that the normalised EBITDA would lie in the range of $95 million to $105 million.
Also, the Company plans to continue focussing on its cost structure. With these initiatives, BGA intends to decrease the exposure to dairy commodity markets and increase the earnings of the business.
RFM maintains its strategy, property revenue up by 22 per cent
Rural Funds Group (ASX:RFF) maintains a diversified portfolio of agricultural assets in Australia. The Company manages a diverse group of Australian properties with six agricultural sectors including Almonds, Cattle, Cotton, Macadamias and Vineyards.
Rural Funds Management Ltd (RFM) is the responsible entity of Rural Funds Group and has announced its financial results for the half-year FY2020 ended 31 December 2019.
RFM strategised to meet its distributions growth of 4 per cent per annum by improving farms and leasing. In-line with its strategy, RFM has acquired and created income-generating assets to enhance Adjusted funds from operations (AFFO) per unit and net asset value per unit in the last five years (FY15 to FY19).
There was an increase in property revenue and AFFO per unit by 22 per cent and 11 per cent compared to pcp, respectively. This increase is mainly because of the cattle acquisitions, JBS Australia transactions, lease indexation and development capital expenditure. The property revenue stood at $37.6 million from $30.7 million. AFFO was 7.1 cents or $23.7 million from 6.4 cents or $20.3 million.
Also, the Company outperformed by delivering an increase of 21 per cent in total comprehensive income (TCI) and 16 per cent growth in earnings per unit on the previous corresponding year. This increase is mainly because of revenue from additional property and productivity developments. TCI was $29.73 million, up from $24.6 million. Earnings per unit were 8.9 cents compared to 7.7 cents in pcp.
Other key highlights are mentioned below:
- Total assets were $872.4 million, an increase of 0.38 per cent compared to pcp.
- Net asset value increased by 2.82 per cent compared to pcp, from $526 million to $541 million.
- Gearing of $26.4 per cent (as at 31 December 2019), as compared to 31.2 per cent as at 30 June 2019
Some of the key attributes which accounting to the positive results of HY20 are mentioned below.
- In-line with acquisitions strategy, the Company acquired six cattle properties (including two feedlots) and two other properties related to macadamia orchards.
- The leasing of Rewan (existing cattle property) to AACo (ASX:AAC) gives a material uplift in rental income and validation of its productivity strategy.
- By selling 17 poultry farms and related plant and equipment, the Company gained funds which were reinvested for higher potential returns.
Source: Company Presentation
RFM’s Outlook
- For FY2021, RFM will continue to maintain its strategy of growing its distribution of 11.28 cpu or 4 per cent per annum.
- For FY2020, the forecasted AFFO payout ratio is 80 per cent or 13.5 cents.
- Based on 24 February 2020 closing price of $2.03, the forecast DPU yield is 5.6 per cent for FY2021.
- Total capital expenditure by FY2021 is estimated at $25.8 million.
