ASX reporting season round up

Written on the 30 November -1 by By Luke Gleeson, private client adviser at Ord Minnett

CORPORATE Australia has delivered the second-highest profit growth in a decade, posting aggregate gains of 21.9 per cent for the 2006 financial year.

This was down from growth of 23 per cent for the 2005 financial year. Despite the stellar performance, many outlook statements have foreshadowed a relatively 'weaker' FY07 and beyond.

With stocks effectively 'priced for perfection' going into the reporting season, it was no surprise to see some material compression of price-earnings multiples in the lead up to the reporting season as investors became increasingly bearish.

Value replaced growth as the 'flavour of the month' and stocks trading on the higher price to earnings (PE) multiples were treated accordingly - if the 'E' part of the PE equation did not come in line with or beat consensus earnings estimates.

Locally, some Gold Coast-based companies also produced impressive earnings results.

Far and away the biggest local stock by market capitalisation is the retailing lifestyle brand company Billabong (ASX Code BBG). Lifestyle brands continue to increase in popularity with BBG owning niche brands with both pedigree and credibility.

The ability to generate near 50 per cent gross margins demonstrates consumer acceptance and successful marketing.

Billabong reported a headline normalised profit figure of $145.9 million for the period.

The result was struck on global sales of $1.02 billion - a rise of 21.1 per cent - and was driven by very strong performances in the key international territories of the Americas and Europe, as well as higher sales in Australasia.

The company issued the following outlook statement: "The outlook for 2007
is for robust revenue growth in the Americas and Europe and more moderate growth in Australasia."

The company also expected to achieve 15 per cent earnings per share growth in the 2006-07 financial year. Ord Minnett has an accumulate recommendation on the stock and a June '07 target price of $16.60.

Another stock in the Ord Minnett coverage universe that calls the Gold Coast home is property management services business S8 (ASX Code SEL). S8 operates in the real estate, tourism and leisure industries. Reported profit for the year ended June 2006 was $21 million, up 20 per cent on the previous year.

S8 is embarking on a major consolidation of the travel industry with the recent purchase of Gullivers Travel and the announcement of a proposed merger with MFS Group. Ord Minnett has a buy recommendation on S8 and a valuation
of $5.85.

 


Author: By Luke Gleeson, private client adviser at Ord Minnett

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