As it happened: ASX back in the red as miners, banks drag on bourse

For the past month reporting companies have generally presented healthy balance sheets and heftier shareholder returns, although the lack of concrete guidance and looming shipping and logistics issues have drawn a mixed reaction from investors.

This was certainly the case for Woolworths, which lifted its full-year profit and revenue, boosted its dividend and announced a $2 billion share buyback, while also warning that it was anxious about getting stock in store for Christmas.

TMS Capital portfolio manager Ben Clark said across the board it had been a relatively strong results season, though the number of companies neglecting to offer guidance was a concern for some.

“It’s a pretty positive mood, but there are two or three issues that have emerged that everyone is dealing with, mostly to do with lockdowns global supply chain issues,” Mr Clark said.

“The cost of moving stuff around have gone through the roof and managing inventories seem to be getting worse.

Mr Clark also noted that the market’s reaction was not necessarily an indication of the health of a company’s balance sheet, with expectations key to share price movements.

“I’ve heard someone say that it shouldn’t be called earnings season, it should be called expectation season,” Mr Clark said.

“It’s not about how good or bad the business did, but how good or bad it did compared to what the market was expecting.

“Generally I think the numbers have been quite strong, it’s the forward-looking stuff that is a bit patchy.“

Wall Street’s lead was cautious on Thursday as investors look to the upcoming Jackson Hole Symposium, where the US Fed is expected to offer guidance on the future of stimulus support and interest rates.

On local shores, shareholders weren’t impressed with the earnings figures released by Endeavour, Qube, a2 Milk, Eagers Automotive, Link Admin Holdings, Cromwell, AUB, Appen or Costa Group.

There were also losses for BHP, Rio Tinto, Fortescue Metals and a slew of gold miners, while NAB, Westpac, ANZ and Macquarie Group, CSL and Afterpay also fell.

“So you can go forward and offer the best value proposition not just for current clients but future clients,” he says.

A key focus of Link’s investment would be improving its cyber security capabilities, to ensure its clients have strong data protection and are prepared for ransomware attacks.

“Everybody in the world faces this huge uphill challenge of this rising danger of cyber attacks,” he says.

“They continue to be more and more sophisticated as time goes by. They come from different places. I’m not quite sure anybody can rest easy, be complacent about their current capability. It’s like painting the harbour bridge, once you paint it, you need to start again.

“We talk about large funds or, large companies with a large number of shareholders. They need robustness in their systems and providers to be able to scale up and do it efficiently, and more important do it securely, and that’s what we will bring to the fore.“

Morningstar analyst Gareth James said the flat earnings forecast had “disappointed people in the market” and weak earnings were also driven by the federal government’s reform agenda for superannuation.

“The main core business, superannuation administration, has been impacted over the last few years with changes to rules to super,” Mr James said. “A lot of the accounts sitting with super funds had to be moved to the ATO. That impacts Link because link gets paid per account.”

“This recovery was built on consistent month-on-month sales growth, escalating during the second half and culminating in a COVID-period record in June 2021, along with tight ongoing cost discipline,” Mr Campbell said.

Sales revenue for the six months to June 30 2021 increased 48 per cent – or $76.3million – compared to the first half and the company typically recorded strong fourth-quarter rebounds globally, despite constantly changing conditions and travel restrictions as countries entered and re-emerged from lockdown.

Unfortunately, a $41million reduction in retained employee government subsidies – mainly related to the JobKeeper program in Australia – during the second half masked the healthy rebound in trading as the year progressed.

“While other government support packages globally extended throughout the year and beyond, the JobKeeper subsidies decreased during the third quarter and the program wound up ahead of the fourth quarter,” Mr Campbell said.

The company claimed a total $277.6 million in government subsidies during the year, up from $98 million last year.

In terms of statutory results, Flight Centre trimmed its loss by a third to $433.5 million in the year to June 30.

Its $507.1 million underlying loss was in line with guidance, although annual revenue missed expectations by falling 80 per cent to $395.9 million.

Total transaction value of $3.95 billion was down 75 per cent from $15.3 billion last year.

One-off cash costs related directly to the company’s COVID-19 response were $200 million during FY21, with an additional $12 million, largely related to lease exits, expected to be incurred during FY22.

Cash burn during the second half was between $30 million and $40 million per month and by year end was mainly being incurred in Australia and in the company’s global area, with the Americas business approaching a neutral cash position after its strong sales uplift late in the year.

Prior to the lockdowns in Australia late in FY21, Flight Centre was on track to lower cash burn to below $30 million by July.

“Predicting a timeframe for recovery remains very difficult, given the lack of visibility and clarity around future government strategies and the various vaccination programs’ ongoing effectiveness against new strains,” it said.

“We said last year that we were targeting a return to break-even on a month-to-month basis in both leisure and corporate travel during the 2021 calendar year on the basis that “domestic borders were likely to open permanently, and some (low risk) international travel could be permitted”.

“This would require us to reach circa 50 per cent of our historic global TTV levels in corporate and about 40 per cent in leisure, in addition to requiring governments to re-open borders.”

He said the Australian public were likely underappreciating the impact that the current wave of Delta was having on healthcare staff.

“They don’t understand that… and not for any other reason that it hasn’t been in front of them,” he said.

Ramsay shares were up 2 per cent at 2pm to $67.93 after the company reported a 58 per cent jump in net profit to $449 million.

Elective surgeries have been bouncing back across the world, but the business has warned its 2022 earnings will come down to the speed of coronavirus vaccinations.

“And then you add that together with some of the challenges on getting the product landed in the stores and there is a lot of juggling to be done.

“In parallel with supply chain pressure, given we have literally half our (fleet/stores) out in the shutdown, we’re only authorised to do essential selling instore. That is, we’re having to work very dramatically through what products we actually want to bring into the country and, and... how do we rethink our sales and inventory profile.”

“Given what happened in China last week, we are anxious just more broadly on making sure we get all the products we need into the country for Christmas”.

Shares in Woolies were up 0.8 per cent at $41.14 at 2pm AEST.

The retailer has been a major beneficiary of the pandemic due to ongoing panic buying and overall heightened sales as supermarkets remained open throughout the country’s lockdowns.

Sales have remained elevated in the new financial year, with both NSW and Victoria locked down battling Delta outbreaks. For the first eight weeks of the year, total food sales increased 4.5 per cent, Mr Banducci said, though the company’s department store division, Big W, has seen sales fall 15 per cent over the same period as its stores are closed through the lockdowns.

COVID-related restrictions have already cost Woolworths $41 million since the start of July, and Mr Banducci said the company was prepared to live with the impact of the virus for some time.

“While we are excited by what the future holds, we are realistic about the challenges that lie ahead in the next few months as we support vaccination and respond to the volatility and challenges that Delta is causing on a daily basis,” he said.