THE Australian share market has continued to maintain its strength through the second week of the reporting season. A number of Australia’s largest companies have now reported including BHP, QBE, CSL and Brambles.
Australia’s largest miner, BHP, reported its largest ever full year loss of US$6.38 billion. This was dominated by write-downs of US shale assets and the Samarco mine. The key positives out of the result was that capex was under market expectations (US$7.7b), fuelling an expected increase in free cash flow from US$3.4b to US$7b in 2017. The underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$12.3b was 3.6 per cent ahead of consensus while management is continuing to deliver on cost controls and productivity gains, trying to maximise margins in the current commodity price strength.
On the negative side, BHP’s dividend came in under expectations to a full year payout of US$0.30 per share.
During the week we also saw QBE Insurance Group report a low quality beat with an underlying deterioration of the Australian and New Zealand operations due to a decline in the attritional claims ratio. This was disappointing due to the steady improvements seen over the year in the local business.
QBE reported net profit after tax (NPAT) of $265 million, which was slightly below the consensus, down 46pc on the previous corresponding period (pcp). Excluding amortisation of intangibles and other non-cash items, cash NPAT of $287m was also below consensus, down 39pc pcp. The large fall reflects the adverse discount rate adjustment of $283m compared with a benefit of $45m pcp as a result of the dramatic fall in discount rates since December 2015, following from Brexit.
On the positive side, capital remains strong with the Australian Prudential Regulation Authority (APRA) prescribed capital amount of 1.69 times maintaining a surplus above S&P’s “AA” equivalent capital. QBE continues to maintain a payout ratio of up to 65pc. It is still targeting $150m FY16 expense reduction and then a $200m targeted claims savings by 2018.
- Christopher Hindmarsh is an adviser at JBWere Limited which is owned by NAB. This article contains general advice only. In preparing it JBWere didn't take into account the investment objectives, financial situation and needs of any particular person. Readers should contact a licensed financial adviser.