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Local Markets

Australian equities bounced on Monday with the ASX 200 up 0.66%, as investors cheered the news that Commonwealth Bank CEO Ian Narev would be stepping down at the end of the year after the recent AML compliance scandal. CBA shares pushed up 1% with the other big four banks generally strengthening.

Bendigo Bank (BEN) rallied by over 7% after a positive earnings result (refer below) which led to a short covering rally. The other regional bank (BOQ) also found buying support rallying by 3.2% as investors hope for a similar result when results are released in October.

JB Hi-Fi shares were dumped, falling by 3.8% despite reporting solid earnings but wasn't enough for investors.

Gold stocks broadly declined with the precious metal coming off recent highs after trading close to the US$1,300 technical resistance level which is likely to act as a near term cap on the price.

International Markets

U.S. markets finished higher on Monday on the back of easing geopolitical tensions and gains in finance, technology, and real-estate shares.

U.S. Secretary of Defense Jim Mattis and U.S. Secretary of State Rex Tillerson confirmed on the weekend that the Trump administration is seeking diplomatic solutions to denuclearize North Korea.

At the closing bell, the Dow Jones, the S&P 500, and the Nasdaq were up 0.6%, 1.0%, and 1.3%, respectively.
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2017 Full and Half Year Reporting Season Monitor

Reporting Summaries

Newcrest Mining Ltd. (NCM)
Tough 2H for NCM but FCF repairs balance sheet

Full Year 2017 Results – Released 14/8/17 – Current Price $21.62
Key Points – in US$ (CE = consensus estimate)

  • Gold production down -2% on FY16 at 2.28Moz vs 2.44Moz
  • Copper production +1% at 83,941t Cu
  • Realised Gold price up 8% on FY16 at US$1,263
  • Realised Cu price up 10% on FY16 at $2.44/lb
  • NCM has beaten consensus on Free Cash Flow (FCF) of $739m vs CE of $517m, but -9% on pcp
  • Cash and Cash equivalents +828% at $492m
  • Beat slightly on revenue at $3,477m vs CE $3,437m
  • Missed slightly on EBITDA at $1,408 vs CE $1,419m, but up from FY16 at $1,324m
  • Miss on statutory net profit $308m vs $340 in FY16
  • Increase in Underlying profit (after exceptional items) to $394 vs $331 FY16 (+22%)
  • NCM had a tough 2H with problems at Cadia after the seismic that has taken some time to get right. It was going to be a tough ask to shoot the lights out with these problems but the increased FCF has been put to work on reducing debt and repairing the balance sheet. This resulted in significant improvements in net debt to EBITDA, now at just 1.1x (down 31% on FY16) after reducing debt by $608m, or 29% on pcp.
  • Increased capital expenditure has been required at several operations, including an increase of $98m at Lihir and an additional $24m at Cadia. However problems at Cadia have been mitigated by a 16% increase in throughput, which contributed to a 65% increase in FCF on pcp from this operation. 
  • Headwinds are going to come from lower grades at some operations and higher electricity costs in Australia which will impact AISC by around $50-60/oz at Cadia. 
  • Costs at Telfer rose, impacted in FY17 by weather related events, that resulted in lower ounce production.


  • NCM has provided lower guidance for the Sept Q compared to the June Q as a result of increased planned maintenance (Lihir) but the 2H should be better as production at Cadia East ramps up
  • Group production has been slated at 2.4-2.7Moz and 80-90kt Cu
  • Total CAPEX is expected at $585-740m and exploration expenditure at $70-90m 

In Conclusion
NCM continue to be one of the lowest cost gold producers globally. They distinguish themselves from peers by their costs and their long-life operations. Group AISC’s have achieved sub $800/oz over the last 3 years and since 2013 NCM has lowered AISC from $1,318/oz to $787/oz.

Source: NCM Company Presentation

In the same period, NCM has reduced net debt by $2.3 billion, making for a much improved balance sheet and benign gearing and net debt to EBITDA multiples. As a result of the improved balance sheet NCM is considering making a change to its dividend policy, guiding for a 10-30% payout ratio of FCF in dividends for 2018 and beyond, with a minimum of US15c/share. If the FY17 FCF was used as a proxy, NCM would have paid out a total dividend of $73.9m to $222m, resulting in a DPS of between US15c and US$29c/share.
We think this was a creditable result given the challenges during the 2H, albeit coming in lower on consensus analysts’ forecasts on some metrics, particularly statutory net profit. However, the company is generating strong cash flow, with a 41% EBITDA margin and cash has been prudently put to good use by lowering debt levels and repairing the balance sheet.
Consensus recommendation remains a Hold with a mean $21.50 target price, slightly lower than the current price of $21.63.

Research Analyst
Paul Adams

JB Hi-Fi Ltd. (JBH)
Full Year 2017 Results – Released 14/8/17 – Current Price $24.37 

  • Total sales up 42.3% and underlying NPAT up 36.5% which were both in line with market expectations 

Financial Results

  • Total sales of $5.6b (up 42.3%) in line with consensus estimates
  • NPAT reported as $172m (up 36.5%) was lower than consensus estimates of $193.3m
  • Underlying NPAT reported as $207.7m (up 36.5%) was in line with consensus estimates
  • FY18 dividend of 46 cps fully franked (payout ratio of 65%). Ex div on 24 August, Payable on 8 September 

Operational Key Points

  • JB Hi-Fi:
    • Total sales grew by 10.9% to $4.15b
    • Gross profit margin of 22.24%
    • Hardware and Services sales up 14.4%
    • Software sales were down 9.1%
    • Online sales in Australia grew 38.4% to $158.9m (3.8% of total sales)
  • The Good Guys:
    • For the period 28 November 2016 (acquired by JBH on this date) to 30 June 2017, total sales were up 0.2% to $1.26b
    • Online sales for the period of ownership were $64.4m (5.1% of total sales)
    • Gross profit margin of 21.3% 


  • July 2017 sales update:
    • Total sales growth for JB Hi-Fi was 8.8% compared to 13.4% recorded a year ago
    • Total sales growth for The Good Guys was 6.8%
  • FY18 Guidance:
    • Expect to open 5 JB Hi-Fi stores and continue to monitor opportunities for the new The Good Guys stores
    • Total group sales to be around $6.8b (JB Hi-Fi $4.65b and The Good Guys $2.15b)

Bendigo & Adelaide Bank Ltd. (BEN)
Full Year 2017 Results – Released 14/8/17 – Current Price $11.99 

  • Cash earnings up 4.2% which was lower than consensus estimates, lending growth up 4.7%, impaired assets down 19.3% 

Financial Results

  • Underlying cash earnings reported as $418.3m (up 4.2%) was below consensus expectations of $427.4m
  • Statutory NPAT reported as $429.6m (up 3.4%) beat consensus expectations of $421.3m
  • Final dividend of 34 cps fully franked. Ex div date 5 September, Payable 29 September 

Operational Key Points

  • Net interest margin (NIM) 2.22% (down 1bp). Decline was due to continued strong deposit competition and lower earnings from equity contribution, offset by repricing in the lending portfolio.
  • Lending growth up $2.3b (up 4.7%) predominantly funded by strong growth in customer deposits.
  • Gross loan portfolio increased by $3.5b (up 6.0%)
  • Impaired assets decreased by $67.6m (down 19.3%), as a number of impaired exposures have been finalised.
Source: BEN Presentation

Aurizon Holdings Ltd. (AZJ)
Full Year 2017 Results – Released 14/8/17 – Current Price $5.08 
  • Revenue flat on last year, statutory net loss missed consensus expectations, on market buy-back announced  
Financial Results
  • Revenue of $3.452b was flat on last year but was better than consensus estimates of $3.370b
  • Underlying EBIT reported as $836m (down 4%) due to the impact of Cyclone Debbie in line with consensus estimates
  • Statutory Net Loss After Tax reported as $188m (compared to $72m profit in FY16) was worse that consensus estimates of a $90.8m loss
  • On market share buy-back of up to $300m (3% of issued share capital) announced to be completed over the next 12 months
  • Final dividend of 8.9 cps (50% franked). Ex div on 28 August, Payable on 25 September  
Operational Key Points
  • 12-month freight review completed. Intend to exit its Intermodal business through a combination of closure and sale. Business was not able to establish significant scale and customer base to support a profitable business.
  • Above Rail:
    • Revenue:
      • Coal above rail up 1% on revenue quality despite cyclone impacted volumes
      • Freight down 8% due to lower revenue quality and volumes
      • Iron ore down 12%, with volumes down 4%
      • Underlying EBIT – down 8% to $402m due to impact of cyclone and deteriorating freight performance
  • Below Rail:
    • Revenue - Increased 7% to $1.3b despite impact of cyclone
    • Underlying EBIT:
      • Down 3% to $490m with additional cyclone-related operating costs and increased depreciation
      • Regulatory mechanism to recover $69m in cyclone impacts in future years
    • Operational Performance – Strong despite cyclone with four monthly railing records achieved  
Outlook – FY18 Guidance
  • Underlying EBIT expected to be between $900m to $960m
  • Operating ratio 69.5% to 71.5%
  • Key assumptions:
    • Below Rail
      • Transitional tariffs assumed for FY18
      • FY16 revenue cap ($24m to be repaid to customers)
      • $21m cyclone repair costs recovery
    • Above Rail
      • Coal volumes 215mt to 225mt
      • Bulk losses reduced
      • Intermodal losses and associated costs excluded due to exit process
    • Group
      • Continued delivery of transformation in remaining core business
      • No major weather impacts
Research Analyst 
Michael Ron
Company Update - Central Petroleum Ltd (CTP)

Central Petroleum Announces a $27m Capital Raising


Current Price: $0.14


Key Points


  • A 15% institutional placement to raise circa $9.2m.
  • A 5 for 12 pro-rata non -renounceable entitlement offer to existing shareholders to raise $18m.
  • Circa 272.6m new CTP shares will be issued taking the shares on issue to circa 705m. This is a 62% increase in the shares on issue.
  • Macquarie and Morgans are leading the raise.
  • The money will be used to drill 4 horizontal wells to increase CTPs reserves in time for delivery to the Northern Gas Pipeline which is expected to be operational in second half of 2018. 

In Conclusion


As we have said post the collapse of the Macquarie transaction CTP has had no choice but to raise substantial equity capital to fund its programs. As the bulk of the money is to expand existing gas reserves CTP shareholders who follow their rights are now having to take on exploration risk. This is a frustrating outcome as shareholders were offered 20c per share with no risk and an option to capture any exploration upside.


There is no doubt that the east coast gas story is compelling and CTP is well placed to sell its gas on the East Coast once the pipeline is complete. There are however other supply responses on foot such as AGL’s floating LNG regassification project. There has also been an uptick in exploration and appraisal programs in South Australia and Queensland.

Research Analyst
Michael Eidne

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