That's all for today - thanks everyone for reading this blog and posting your comments.
We'll be back tomorrow from 9am.
Have a sunny evening.
![market close](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/g/h/4/2/image.imgtype.columnistThumbnail.60x60.png/1427260967167.jpg)
Shares ended slightly lower, pulled down by big slumps in Brambles and WorleyParsons in an overall lacklustre session as investors stuck to the sidelines with US markets closed today.
The ASX lost 0.2 per cent to 5795.1, with a 1.8 per cent slump in the industrial sector weighing most.
Brambles dropped nearly 10 per cent as the full extent of problems in its US business became evident and the company ditched sales and profit forecasts for the medium-term.
"Brambles is dragging everyone else today. This is because they released their actual numbers today, which is far worse than they have flagged earlier," said Gary Huxtable, client adviser at Atlantic Pacific Securities. "So it took investors by surprise."
"What's happening is that more people are now doing their shopping online with the likes of Amazon and having their orders delivered straight to their homes. And this has cut the need for pallets and storage space among retailers," he said. "But a lot of people were surprised by the much lower number reported by Brambles."
WorleyParsons plunged 12.8 per cent after it disclosed problems recovering debts and reported a $2.4 million first-half net loss.
Among the positive earnings reports, BlueScope Steel added 4 per cent.
Big miners BHP and Rio Tinto were down 0.6 per cent and 0.2 per cent respectively, while Fortescue added 1.5 per cent.
The big banks were mostly higher apart from NAB which ended flat, as did Telstra.
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/h/2/8/f/image.related.articleLeadwide.620x349.guh28o.png/1487568686839.jpg)
![asian markets](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/b/d/k/a/image.imgtype.columnistThumbnail.60x60.png/1427082894487.jpg)
Regional markets are flat to slightly higher in light trade as political uncertainty globally keeps the mood cautious, while the US dollar has recouped early losses ahead of a busy week for Federal Reserve speakers.
Japan's Nikkei is flat, the Hang Seng in Hong Kong is up 0.3 per cent, Korea's Kospi is flat while the Shanghai Composite is up 0.8 per cent. Turnover is light with US markets closed for the Presidents Day holiday.
Oil prices are a shade lower having suffered the first weekly decline in five weeks as the market weighs rising US drilling and record stockpiles against efforts by major producers to cut output to reduce a global glut.
![shares down](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/b/d/k/t/image.imgtype.columnistThumbnail.60x60.png/1415318866197.jpg)
Brambles says said fierce competition with rival PECO Pallet in the US market is responsible for the downgrade in its annual earnings forecast announced last month, sending shares plunging 11 per cent.
The pallets and container group had initially attributed the lower forecast to unexpected destocking by US retailers that impacted volumes and resulted in increased costs associated with higher-than-expected pallet returns. But Tom Gorman, Brambles' outgoing chief executive, said on an earnings call that strong competition was a bigger reason for the cut.
That places more pressure on Graham Chipchase, who takes over from Gorman as CEO today, to improve the performance of the US division, which accounts for most of Brambles' revenue but has lower margins than its European business.
"The US competitive landscape has clearly changed," BT Investment Management analyst Sondal Benson said. "The new owners of PECO have a willingness to invest significant capital to grow at much lower return hurdles than the returns Brambles is expecting to generate on incremental capital."
Brambles today withdrew its guidance for return on capital investment to reach 20 per cent by June 30, 2019 from 15.9 per cent at December 31.
Shares of the company, which fell to an intraday low of $9.33 - the weakest since 2014 - are down 8.45 per cent at $9.53.
![Second shock this year for Brambles investors.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/t/w/o/7/0/image.related.articleLeadwide.620x349.gugz3m.png/1487565177324.jpg)
![need2know](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/g/h/4/5/image.imgtype.columnistThumbnail.60x60.png/1427239371417.jpg)
The profit reporting season has had its fair share of contrasting results but the bifurcation evident in today's numbers from half a dozen companies was a reminder that continuous disclosure will not protect investors from big surprises, the AFR's Tony Boyd writes:
One reasonable measure of the success - or otherwise - of the continuous disclosure system is the market reaction to the publication of results.
A company that reports a result in line with the market's consensus earnings expectations usually trades within a narrow range after updating the market.
But these days it is not unusual for a company that has not previously issued a profit warning to disappoint the market on the day of its results and then see its shares absolutely smashed.
Theoretically, any company that is going to report results which are more than 10 per cent out of whack with consensus should have warned the market ahead of its official release.
While there are some obvious examples of companies not having warned the market when they should have, most of the big negative moves have occurred because of horrible outlook statements.
Outlook on financial guidance is obviously a grey area. Some boards of directors believe continuous disclosure captures outlook statements while others clearly don't.
These issues were under the spotlight today with the significant positive and negative sharemarket responses to half-year financial results.
The three biggest negative performers were logistics group Brambles, down 9.5 per cent, engineering consulting company WorleyParsons, down 16 per cent, and technology and software group CSG, down 30 per cent.
The three biggest positive performers were adventure tourism company Skydive the Beach Group, up 8 per cent, health insurer NIB Holdings, up 12.9 per cent, and G8 Education, up 3.6 per cent.
![WorleyParsons shocked the market this morning.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/3/p/k/z/image.related.articleLeadwide.620x349.gugxpo.png/1487563626072.jpg)
![ASX](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/a/t/4/4/image.imgtype.columnistThumbnail.60x60.png/1428971439499.jpg)
For the first time since 2003, many high momentum stocks are actually cheaper than those with low momentum, Morgan Stanley says.
When it comes to investing in the ASX, the broker's analysis shows that one of the most reliable indicators is whether a stock has risen in the past.
So-called "momentum" investing is usually expensive, but some of the ASX stocks with the most momentum are going cheap โ a rare event that last occurred in 2003.
Stocks including BHP, South32, Origin Energy, Bluescope Steel, Whitehaven Coal and ANZ are among the top ASX stocks by price growth in the past year.
But on a price-to-book ratio basis, they're far cheaper to buy than many stocks whose share prices haven't risen much at all over the past 12 months, such as Telstra, APA Group, Flight Centre, Brambles and Transurban.
BHP, for example, has a price-to-book ratio of 2, and its price has risen 75 per cent in the past year. Similarly, ANZ's share price is up 39 per cent year-on-year, but its price-to-book ratio is only 1.5 per cent.
On the other side of the ledger, Telstra's price has risen just 1 per cent, but its price-to-book ratio is 3.8, making it relatively more expensive than every single one of the best momentum stocks identified by Morgan Stanley. Vitamins company Blackmores has a price-to-book ratio of 11.6, but its price has declined 25 per cent.
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/g/w/b/q/image.related.articleLeadwide.620x349.gugwco.png/1487561793329.jpg)
![I](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/3/a/m/image.imgtype.columnistThumbnail.60x60.png/1455860574632.jpg)
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/g/v/8/m/image.related.articleLeadNarrow.300x0.gugvkb.png/1487561017096.jpg)
As fund managers and analysts gear up for the second week of reporting season, Macquarie's equity strategy team reckons there are a few lessons to be learned from week one.
Macquarie sent clients its list of five conviction developments this morning:
The conviction developments included:
1. Three clear underlying themes have emerged for retail:
- House fillers continue to post solid revenue gains (Nick Scali, JB Hi-Fi);
- Consolidation within retail categories โ home electronics and improvement โ has been an even larger than expected revenue generator and importantly without the need to sacrifice margins (JBH, Bunnings (WES)); and
- Trade down is providing increasing support for the discount end of the retail market (Kmart (WES), Target (WES), Tigerair (Virgin Australia)) against a backdrop where discretionary spending levels are not high.
2. Capex & infrastructure fundamentals improving.
Economy wide capex trends remain weak, but the developers and capex sensitive stocks have come in well above expectations (CIMIC, Downer).
3. Major banks better than expected but regionals under intense pressure.
There was a large discrepancy between underlying conditions for regional banks (Bendigo & Adelaide Bank, MyState) versus the majors, which saw upside surprise on bad and doubtful debts, slightly stronger mortgage repricing, solid cost control and further organic capital generation.
4. Underlying trends in favour of general insurers (Suncorp)
Underlying conditions for general insurance appear to be improving. Both personal and commercial lines are experiencing modest price increases according to APRA, with the external environment also becoming more favourable as higher interest rates provide earnings support.
5. Conditions for US housing rebound strong
Neither James Hardie nor Boral provided upside surprises on their Nth American operations. However, conditions for a better than expected housing recovery are continuing to fall into place:
- Affordability is high with debt service as % of disposable income at all-time lows;
- Housing inventory at a 12 year low;
- US households have been one of the few to significantly deleverage;
- Wages growth is improving; and
- Credit creation is likely to become easier and not tighter.
Considering the five developments, Macquarie added Suncorp to its model portfolio to increase its insurance exposure.The strategists made room by exiting Star Entertainment.
All-in-all, Macquarie said 37 per cent of stocks under coverage to have reported had beat expectations, while 40 per cent hit and 23 per cent missed.
![money printing](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/w/x/b/image.imgtype.columnistThumbnail.60x60.png/1487112893009.jpg)
The country's largest private childcare provider G8 Education has raised $213 million from a Chinese private equity giant, distracting investors from a 9 per cent fall in annual profit to $80.3 million.
The Gold Coast-based company said that CFCG Investment Partners International paid $212.8 million for about 12.5 per cent of the company, at a price of $3.88 per share. The investment vehicle is a subsidiary of the Hong Kong-listed China First Capital Group, which has a market value of $HK13 billion ($2.2 billion).
G8 said it would use the funding to pay down a $50 million bond facility that is due in February 2018 and also to contribute to almost $200 million in settlements for child care centres it has bought, that will become due in the next two years.
The funding came as the $1.4 billion company said its profit in the year to December 31 fell 9 per cent to $80.3 million, from $88.6 million in the prior year. Revenue in the period rose 11 per cent to $777.5 million.
EBIT was flat at $160.7 million, but using the company's preferred measure, which removes acquisition expenses and a gain on the sale of shares in Affinity Education in 2015, underlying EBIT rose 10 per cent.
Shares in G8 are trading 4 per cent higher at $3.70 after surging as much as 8 per cent early. The stock is trading below its 12-month high of $4.13, which it hit last June, but Monday's boost has it 13 per cent higher for the year.
The company bought 21 child care centres in Australia and two in Singapore during the year taking the total network to 510. Of those, 490 are in Australia.
On a like-for-like basis occupancy rates fell in every state except South Australia.
![G8 Education bought 21 child care centres in Australia and two in Singapore in 2016, taking the total network to 510.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/s/b/d/y/v/image.related.articleLeadwide.620x349.gugux2.png/1487560063459.jpg)
![I](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/3/a/m/image.imgtype.columnistThumbnail.60x60.png/1455860574632.jpg)
When it comes to investing in the ASX, Morgan Stanley analysis has shown one of the most reliable indicators is whether a stock has risen in the past.
So-called "momentum" investing is usually expensive, but some of the ASX stocks with the highest momentum are going for cheap - a rare event that last occurred in 2003.
Stocks like BHP, South32, Origin Energy, Bluescope Steel, Whitehaven Coal and ANZ are among the top ASX stocks by price growth in the past year.
But on a price-to-book ratio basis, they're far cheaper to buy than many stocks whose share prices haven't risen much at all over the past 12 months, like Telstra, APA Group, Flight Centre, Brambles and Transurban.
BHP, for example, has a price-to-book ratio of 2, and its price has risen 75 per cent in the past year. Similarly, ANZ's share price is up 39 per cent year-on-year, but its price-to-book ratio is only 1.5 per cent.
On the other side of the ledger, Telstra's price has risen just 1 per cent, but its price-to-book ratio is 3.8, making it relatively more expensive than ever single one of the best momentum stocks identified by Morgan Stanley. Vitamins company Blackmores has a price-to-book ratio of 11.6, but its price has declined 25 per cent.
The analysis, by a team of Morgan Stanley analysts led by equity strategist Stephen Ye, follows earlier research from the financial services firm that identified momentum analysis as the best quantitative strategy for investing in the Australian share market over the past 20 years, beating out strategies like value investing, growth investing or investing based on what stocks are cheap on a price-to-book ratio (without reference to recent momentum).
Momentum investing was a better guide to decision-making in Australia than it was anywhere else in the world.
![The momentum trade is unusually cheap at the moment.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/g/t/8/9/image.related.articleLeadwide.620x349.gugt9p.png/1487558067248.jpg)
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/3/p/0/image.imgtype.columnistThumbnail.60x60.png/1427331849763.jpg)
BlueScope Steel has warned Australia faces heavy job losses unless there is an overhaul of the country's energy policy that tackles the twin issues of security of supply and affordability.
"Without energy security, jobs are going to leave the country in droves," chief executive Paul O'Malley warned on Monday.
He called for a "baseload" target for each region of the national energy market, so that all energy users could be assured of security of supply at any time. As part of this, all future energy price scenarios needed to be assessed to take into account the planned closure of any power plant and also the impact on power prices.
With renewable energy, a single nationwide target was essential, rather than the present mish-mash of a national target along with separate targets for several states, he said.
Additionally, the renewables energy target should not be the driver of the energy market, but should be shaped around the need to ensure security of supply and affordability.
![Renewables are in the firing line.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/a/h/a/2/image.related.articleLeadwide.620x349.gugrvl.png/1487556309933.jpg)
Worries about high valuations on Wall Street are growing, after its recent record run that has taken the rise in the S&P500 since the US election on November 8 to a whopping 13 per cent:
U.S. stocks are currently more overvalued than they were 96.1% of the time since 1881. Gulp. https://t.co/Ozv8N8p2SW pic.twitter.com/6DhDftUzMc
โ Jesse Colombo (@TheBubbleBubble) February 13, 2017
![commodities](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/w/x/l/image.imgtype.columnistThumbnail.60x60.png/1438217120195.jpg)
China's coke and coking coal futures are up after Beijing suspended imports of North Korean coal as part of its efforts to implement United Nations sanctions against its northern neighbour.
The most-active May coke futures were up 1.3 per cent at 1709.5 yuan ($US249.05) per tonne, while coking coal futures were also up 1.3 per cent at 1250 yuan.
China stopped all imports of coal from North Korea from Sunday, the country's commerce ministry said in a notice posted on its website on Saturday. The ban on the isolated country's biggest export will be in place until December 31.
The move came a week after Pyongyang tested an intermediate-range ballistic missile, its first direct challenge to the international community since US President Donald Trump took office.
North Korea was China's fourth biggest supplier of coal last year, with imports of anthracite, high-quality coal used to make coke, a key ingredient in steelmaking, reaching 22.48 million tonnes, up 14.5 per cent compared to 2015.
![I](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/3/a/m/image.imgtype.columnistThumbnail.60x60.png/1455860574632.jpg)
"So far so good," is UBS strategist David Cassidy's take on earnings season.
Results have been on the high side of expectations, and a "clear trend" coming out of presentations has been upbeat guidance, he says.
Otherwise Cassidy finds it tough to identify any clear reporting season trends at this stage, apart from the obvious improvement in resources sector earnings.
"We have so far seen good and bad results in both globally/US orientated and as well as domestically focused companies," he says. "The ex-resources EPS growth pick-up forecasts is much more modest but improving nonetheless."
Just on underlying earnings words like "restructuring" & "transformation" charges could be buckets filled with all kinds of rubbish.
โ Peter Morgan (@psimpsonmorgan) February 19, 2017
As positive surprises Cassidy nominates AGL Energy, Amcor, Boral, CIMIC Group, Computershare, Downer EDI, JB Hi-Fi, Resmed and Transurban Group, while disappointments are Bendigo Bank, Domino's Pizza Enterprises, Henderson Group, IOOF Holdings, James Hardie Industries, REA Group and Tabcorp Holdings (this was before today's reports by Brambles or WorleyParsons).
So why have share price reactions been so harsh in reaction to some fairly minor misses to consensus expectations? Cassidy sees three reasons:
- market positioning pre-result
- stock valuation (cheap or expensive)
- perceived result "quality" in some cases.
Overall, it's unlikely we're going to see a profit bonanza this season, but we are getting better earnings foundations, he says.
"Valuations suggest little margin for error and a moderate correction driven by a global/US correction would not surprise but we consider the improving profit trend is a supportive fundamental underpinning for the market with resource sector earnings (for now) in a powerful upswing and upgrade cycle."
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/g/q/5/2/image.related.articleLeadwide.620x349.gugq5q.png/1487553974903.jpg)
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/3/m/j/image.imgtype.columnistThumbnail.60x60.png/1427331772059.jpg)
Woolworths and Coles landlord Charter Hall Retail REIT has joined its peers in forecasting an improvement in supermarket retailing after delivering $172 million profit driven by steady income growth and higher property valuations.
The real estate trust, for which Woolworths and Wesfarmers' Coles make up 50 per cent of rental income, saw anchor tenant moving annual turnover growth of 2.8 per cent up from 1.2 per cent in the prior corresponding period, however specialty sales growth has slipped from 4.9 per cent to 1.6 per cent, with big drops in South Australia and Western Australia down 3.9 per cent and 4.8 per cent, respectively.
The focus was on improvements from the majors.
"Our expectation is for continued improvement from Woolworths and challenging trading conditions for specialty retailers," Charter Hall Retail REIT fund manager Scott Dundas said.
"Our expectation is for Woolworths to improve its sales for the balance of this financial year."
Head of Retail Property Services Greg Chubb said supermarket sales have shown steady improvement and that has continued into January.
Peer landlord, Shopping Centres Australasia Property Group, which also has an $83 million stake in Charter Hall Retail REIT, has also forecast an improvement in supermarket sales earlier this month.
Mr Dundas said there had not been any discussions in terms of corporate activity with SCA Property Group.
"We have not had any engagement with SCP," Mr Dundas said.
The trust's operating earnings of $61.7 million were up 0.2 per cent on the previous corresponding period. Net operating income growth of 2.4 per cent represented 70 per cent of the portfolio.
The trust has also announced a buy-back of up to 10 per cent of the trusts units.
"I think its timely to look at other capital management strategies. Buy backs or returns of equity to investors," Mr Dundas said.
Following revaluations and completed redevelopments, the trust's average asset value has increased from $39.7 million at June 2016 to $43.3 million at December 2016.
Charter Hall Retail's shares are up 0.5 per cent at $4.28.
![Woolworths and Coles landlord Charter Hall Retail REIT has forecast an improvement in supermarket retailing.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/t/7/5/e/l/image.related.articleLeadwide.620x349.gugpet.png/1487552414539.jpg)
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/3/k/r/image.imgtype.columnistThumbnail.60x60.png/1427331725030.jpg)
Outdoor and digital advertising group oOh!Media has lifted full-year net profit 17.4 per cent to $21.6 million, boosted by a trio of acquisitions and the continued rollout of its digital billboards.
Revenue for the 12 months to December 31 rose 20.1 per cent, with underlying earnings up 27 per cent at $73.5 million, at the upper end of guidance issued in December.
"Our performance highlights the benefits of our diversified portfolio of assets, and we firmly believe this positions the company for continuing growth," chief executive Brendan Cook said in a statement.
"Importantly, the products are increasingly benefiting from greater co-ordination of campaigns and the network effect across multiple media environments and channels."
The advertiser more than doubled its number of large format digital screens in premium locations from 90 to 190, including 54 large format road billboards - easily exceeding its prospectus target of 50 by 2018.
oOh!Media also noted that the acquisition and integration of Executive Channel Network, Junkee Media and Cactus Imaging had strengthened its reach, content capability and efficiency.
With a proposed merger with APN Outdoor still subject to a shareholder vote, the company did not give earnings guidance for the 2017 financial year.
The shares are up 1.8 per cent at $4.58.
![oOh!media chief executive Brendon Cook.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/i/r/9/v/e/image.related.articleLeadwide.620x349.gugog5.png/1487550987639.jpg)
![shares up](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/b/d/k/u/image.imgtype.columnistThumbnail.60x60.png/1427243281357.jpg)
ANZ shares are getting another healthy boost after the stock was upgraded by Bell Potter following Friday's solid quarterly update.
The bank has "unquestionably" experienced a strong first quarter, said analyst TS Lim in his decision to reinstate a 'buy' rating and increase the price target to $33.25.
ANZ shares are up 0.8 per cent at $31.02, the best performing big bank this morning, after their 1.8 per cent rise on Friday.
"ANZ's 1Q17 trading performance was a pleasant surprise, registering strong revenue growth and very tight cost management," Lim writes in a note to clients. "It should also come as no surprise that higher cash and adjusted pro-forma NPAT were boosted by good retail banking performances in Australia and New Zealand (home lending being the major contributor) and a turnaround in Institutional banking fortunes that offset more subdued volumes in commercial lending."
ANZ also benefited from lower bad debt charges as well as the sale of a major property in New Zealand, he said.
"Jaws - the difference between the growth rates for income versus expenses - was the most important result driver in our view, coming in at +11 per cent on a cash basis and +5% on an adjusted pro-forma basis," Lim said, adding that for ANZ investors "it's safe to go back in the water".
Macquarie is less bullish on the stock, saying the "devil is in the detail" of the update as it keeps a 'neutral' rating with a price target of $30.21.
From a headline perspective, ANZ clearly had a very strong start to the financial year, the bank's analysts say.
But the problem for the stock is it will be difficult for the bank to keep on outperforming they say.
"A pick-up in trading income and gains on property sale are arguably going to be difficult to replicate and we estimate that on an underlying basis (ex. markets and property sale gains), revenue growth was below our forecasts and ~3% down on average of last two halves.
"While earnings upgrades relating to an improved credit environment coupled with a sector-leading capital position provide a favourable backdrop for ANZ's investment thesis, we note that following a re-rating ANZ is trading broadly in line vs long-term price-earnings relative to peers.
"We believe that further multiple expansion is difficult to justify given remaining near-term risk associated with ongoing restructuring agenda and challenging underlying revenue trends."
![ANZ's return on equity.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/g/o/3/b/image.related.articleLeadwide.620x349.gugo46.png/1487550479459.jpg)
![shares up](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/b/d/k/u/image.imgtype.columnistThumbnail.60x60.png/1427243281357.jpg)
Monadelphous shares have jumped on news of a proposed five-year contract to provide services across a number of Oil Search's facilities in Papua New Guinea.
In a statement to the ASX, the company said it had received a letter of intent to enter into the proposed new five-year contract, worth $US50m a year, which will be done in a joint venture with Jacobs Engineering Group.
The proposed contract is for engineering, procurement and construction services on oil search's oil and gas production facilities in highlands region of PNG.
The stock is up 4 per cent to $11.96, and has almost doubled over the past year.
![](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/1/m/8/3/g/a/image.imgtype.columnistThumbnail.60x60.png/1427331625839.jpg)
Health insurer NIB has raised full-year earnings forecasts even as it warned the benign claims experience of the December half may not re-occur in the balance of the year, with claims inflation is beginning to return to longer term trend levels.
In the December half, the net profit rose 65 per cent to $71.8 million as it benefited from gains not only in the domestic health insurance market, but also in New Zealand, travel insurance and the international student markets.
Investors have responded enthusiastically to the result, pushing the shares up 5.8 per cent to $4.99.
While Medibank Private continued to lose customers, NIB was a winner, with its core Australian residents health insurance arm enjoying net policyholder growth of 2.1 per cent for the six months.
The higher profit was earned on a 7.3 per cent rise in revenue to $995 million for the half. The underlying operating profit rose 43 per cent to $95.2 million.
For the full year to June, NIB said it now expects the net profit to run at between $137-147 million, well up from the earlier forecast of $122-132 million, with the underlying operating profit seen at $140-150 million, up from $130-$140 million seen earlier.
According to managing director Mark Fitzgibbon, overall private health insurance participation rates are likely to remain steady at around 50 per cent of the population.
"Affordability is clearly a factor but so too is a relatively weak retail environment generally with high competition for discretionary consumer spending," Mr Fitzgibbon said.
"Affordability is a relative concept and beyond managing costs easing the pressure on premiums we need to look towards ways we can also give consumers more value for the premiums they pay."
In the December half, the domestic health insurance division enjoyed "fairly benign claims experience", he said.
"There are however, some signs that claims inflation could now be moving higher towards longer term trend lines."
![NIB Holdings CEO Mark Fitzgibbon said the group accounted for half of industry policyholder growth in the half year to ...](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/r/7/a/j/c/image.related.articleLeadwide.620x349.gugmz4.png/1487548516247.jpg)
![market open](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/g/h/4/3/image.imgtype.columnistThumbnail.60x60.png/1427152702357.jpg)
Shares are lower in early trade, dragged lower by sharp falls in the WorleyParsons and Brambles following their profit updates.
The ASX 200 is down 10 points at 5796, with a mixed performance in blue-chip miners and banks adding to the morning choppiness.
Worley and Brambles are both down around 8.7 per cent. Among the well-received profit reports are G8 Education and Nanosonics, which are 4.5 per cent and 2.9 per cent ahead, respectively.
ANZ is the best of the banks, up 0.8 per cent after a broker upgrade, while the other three majors are flattish. BHP is off 0.5 per cent, but Rio is up 0.1 per cent and Fortescue 1.5 per cent. South32 is down 1.5 per cent.
Woolies, Wesfarmers and Telstra are up by between 0.4 and 0.7 per cent, but CSL is down a bit.
![Winners and losers in the ASX 200 this morning.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/u/g/m/8/d/image.related.articleLeadwide.620x349.gugm8u.png/1487547217239.jpg)
![shares down](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/2/b/d/k/t/image.imgtype.columnistThumbnail.60x60.png/1415318866197.jpg)
WorleyParsons has raised its cost cutting target to offset slumping earnings in its engineering services business, forcing the company into a $2.4 million interim net loss.
The company, which reported a $23.1 million interim profit a year ago, said it now planned to cut $450 million in costs by the end of 2016-17, up from $300 million previously after group revenues slid 35 per cent to $2.7 billion.
Although the company slashed $220 million of costs in the first half, it said the cutbacks did not offset "market contraction" and underlying net profits also fell, dropping 23 per cent to $57.1 million.
Hydrocarbons earnings fell 20 per cent to $137.7 million, while minerals, metals and chemicals earnings dropped 83 per cent to $3.2 million. Infrastructure earnings rose 20 per cent to $36.2 million.
Earnings from WorleyParsons' consulting business, Advisian, tumbled 93 per cent to just $2.3 million, while group earnings halved to $36.4 million.
The company is losing cash, with net cash outflows of $84.8 million after spending $77.8 million to reduce costs, including closing 6 more offices. WorleyParsons has 112 offices in 42 countries, and 23,200 employees.
WorleyParsons' chief executive Andrew Wood said the company had also made "limited" progress on collecting outstanding debts, with four state-owned customers owing $230 million. "Collection of these funds is a critical priority going forward," Mr Wood said.
Gearing rose to 32.9 per cent from 29.2 per cent, with the ratio of net debt to earnings before interest taxation depreciation and amortisation increasing to 2.6 times from 2.4 times, but the company said it remained within its debt covenants.
Investors want WorleyParsons to reduce net debt, which is now running at $920 million, as much as possible, because it does not own many hard assets.
Mr Wood said first-half cost reductions were expected to benefit second half earnings, and that customer sentiment was "improving".
WorleyParsons will not pay an interim dividend. It scrapped its interim dividend a year ago with the aim of using spare cash to reduce debt and did not pay a final dividend in 2015-2016.
The company's shares have slumped 8.7 per cent to $9.
![WorleyParsons CEO Andrew Wood.](/web/20170221180138im_/http://www.smh.com.au/content/dam/images/g/r/0/a/e/i/image.related.articleLeadwide.620x349.guglpq.png/1487546403582.jpg)
Search pagination
1 new post(s) available. View post(s) Dismiss