Will Fortescue become a ‘yield stock’? (FMG, VOC, BSL)
A good fight back by the market this afternoon to overcome some decent selling in early trade – the index closing ~26pts from the session lows with support seemingly found amongst the banks and the insurers – SUN + QBE which have been under a lot of pressure in recent times. A few extremes in terms of results today, Bluescope (BSL) delivered a good set of FY17 numbers, better dividend, $150m buy back however their guidance was a big miss and the CEO is stepping down – the stock dropped -21.83%, while on the flip side, Beach Energy (BPT) did well post report adding +10% as did G8 Education (GEM) which put on +8.85% - ditto for Fortescue which added 6.36% to close at $5.85 – more on that below.
Overall, strong Oil prices ensured that the energy stocks found some form while on the flipside, Vocus was hit hard after the two private equity bidders pulled their bids for the company – shares closing down 14.6% to $2.75. The mkt had a range of +/- 48 points, a high of 5747, a low of 5699 and a close of 5725, off -21pts or -0.37%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Fortescue (FMG) – reported full year results this morning and despite missing slightly in terms of earnings – the stock was strong on mkt today closing up more than 6%. Missing on earnings but beating in terms of capital management is the key takeout from the miners this reporting season thus far. In terms of FMG’s numbers, full year earnings printed $2.09b versus the markets expectations of $2.14b – so 2.5% below however they beat on other metrics.
The key area of today on FMG was around the dividend (now) but more importantly what they plan to do with it in the future. For FY17 they printed a 45cps full year return (25cps final) which compared to 37c consensus however the main change was around dividend pay-out ratio guidance which increased to a range of 50-80% of NPAT – up from around 40%. Based on current earnings expectations, this equates to something like a 4.5-7% dividend yield plus Iron Ore has stayed higher for longer than most analysts have factored in – so, FMG is probably cum upgrade in terms of earnings as well. These guys were going out the backdoor when it was trading at $1.47 a share and look at them now. Who knew that putting lipstick on a pig could deliver such a beautiful dividend paying princess!!!
We’ll address FMG as a yield stock in the AM report tomorrow.
Fortescue Metals Daily Chart
Bluescope (BSL) – a strong outcome for FY17 with a beat in terms of earnings and dividend plus a share buy-back, however the market was looking for continued growth in FY18, and got a likely reduction instead which equates to about a 20% downgrade relative to where the mkt was positioned. We also got the resignation of well-respected CEO Paul O’Malley, which is never a positive. One aspect that caught my eye was around the impost of higher input prices – Energy was key (coal etc) as was Iron Ore. I always like looking at company assumptions around pricing and currency, and here are BSL’s…..so lower Aussie Dollar, lower Iron Ore etc
Bluescope Daily Chart
Vocus Communications (VOC) – can’t take a trick it seems with both potential suiters walking and the stock down around 14%. They also updated guidance saying that they expect $366.4m EBITDA, net profit $152.3m for 2016/17 which is relative to prior guidance of $365m-$375m and profit guidance of $160m-$165m. If you recall, the PE bids were conditional upon earnings being met and clearly, there is a bees…. eyebrow in it at the moment. In short VOC can’t afford to have a profit downgrade or it will breach debt covenants and possibly need to raise equity.
Vocus Communications Daily Chart
Have a great night
The Market Matters Team
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