Note: Results referring to percentage changes (increases/decreases) relate to the previous corresponding period (pcp), e.g. Q3FY22 results are compared to those of Q3FY21.
Australian Share Portfolio
Amcor PLC (AMC:AU)1
|Share price||9/3/2022: $15.01|
|Revenue||US$6.93bn, an increase of 2% (constant currency)|
|NPAT||US$427m, a rise of 2.5% (constant currency)|
|Key points||Rising costs successfully passed onto customers, AMC announced an extra US$200m of share repurchases in addition to the original US$400m buyback, guidance of 7%-11% EPS growth re-iterated.|
|Our comments||Solid result in face of rising input costs, underlying the defensive qualities of business.|
ASX Limited (ASX:AU)1
|Share price||9/3/2022: $79.47|
|Revenue||$501m, an increase of 7%|
|NPAT||$250m, a rise of 4%|
|Key points||Listings and Issuer Services revenue increased 17%, offset by lower futures volumes and a 13% rise in expenses.|
|Our comments||Resilient result in the face of a difficult operating environment, rising interest rates pose a headwind over the medium term.|
BHP Limited (BHP:AU)1
|Share price||9/3/2022: $48.49|
|Revenue||US$33.78bn, an increase of 32%|
|NPAT||US$10.69bn, a rise of 78%|
|Key points||Strong commodity prices underpinned profit, though the fall in the iron ore price impacted earnings from the division. BHP flagged that they won’t consider capital management post the deal that saw its oil operations spun into the larger Woodside.|
|Our comments||Commodity price volatility likely to continue into 2022, the iron ore price susceptible to a deepening of the crisis in China’s property sector.|
CarSales Limited (CAR:AU)1
|Share price||9/3/2022: $19.94|
|Revenue||$242m, an increase of 16%|
|NPAT||$89m, a rise of 20%|
|Key points||Result driven by the domestic dealer division and continued strong growth in the international segment.|
|Our comments||Guidance is for strong growth in FY22 as the ramping up of international businesses coincides with improving domestic volumes.|
Commonwealth Bank of Australia (CBA:AU)1
|Share price||9/3/2022: $97.41|
|Revenue||$12.27bn, an increase of 3%|
|NPAT||$5.87bn, a rise of 21%|
|Key points||Strong business outcomes, reduced remediation costs and lower loan loss provisions supported the result. Strong increase in interim dividend to $1.75. Net Interest Margin (NIM) fell 14 basis points but it is a relatively strong 1.92%.|
|Our comments||CBA continues to justify why it trades at a premium to the other majors, its NIM remains ahead of its competitors and the bank was able to once again grow both its Consumer and Business loan books solidly above system (1.2 times and 1.7 times respectively).|
Cochlear Limited (COH:AU)1
|Share price||9/3/2022: $214.50|
|Revenue||$815m, an increase of 10% (12% in constant currency)|
|NPAT||$158m, a rise of 20% (constant currency)|
|Key points||Cochlear implant units increased 7%, with strong growth in emerging markets offsetting the decline in developed markets. Services revenue and acoustics revenue increased 21% and 40% respectively, these divisions combined now account for over 40% of Group revenue.|
|Our comments||COH’s FY22 outlook is strong, with expected NPAT growth of between 13% and 22%. Balance sheet remains robust, with $506m in net cash.|
Coles Group (COL:AU)1
|Share price||9/3/2022: $17.30|
|Revenue||$20.79bn, an increase of 1.0%|
|NPAT||$549m, a decrease of 2.0%|
|Key points||The supermarkets division, which provides around 90% of Group sales, increased revenues by 1.6%. Profit has been impacted by COVID-19 disruption costs.|
|Our comments||Operating environment remains volatile. E-commerce provides a growth avenue, continuing to grow strongly, notwithstanding COVID-19 restrictions.|
CSL Limited (CSL:AU)1
|Share price||9/3/2022: $257.00|
|Revenue||US$5.99bn, an increase of 4% (constant currency)|
|NPAT||US$1.76bn, a decrease of 5% (constant currency)|
|Key points||A well-flagged but muted half-year for CSL, impacted by a 9% fall in immunoglobulin revenue as sales limited by COVID-19 constrained plasma collections. Guidance for FY22 NPAT heavily skewed to the first half as seasonality and acquisition costs (relating to takeover of Vifor Pharma Limited) affect second half earnings.|
|Our comments||Whilst CSL’s results were impacted by a sharp fall in immunoglobulin sales, all other products within the CSL Behring division recorded solid increases in revenue. Sequiris vaccine sales were also at record levels and CSL continues to invest solidly (~10% of revenue) in Research and Development. In combination with the acquisition of Vifor, this augers well for earnings from FY23.|
Rio Tinto Limited (RIO:AU)1
|Share price||9/3/2022: $119.88|
|Revenue||US$63.50bn, an increase of 42%|
|NPAT||US$21.09bn, a rise of 116%|
|Key points||Result underpinned by the iron ore division, where profit rose 52% to US$17.32bn. A final dividend of A$5.77 and a special dividend of A$0.86 were declared, taking the total FY21 dividend to A$14.23.|
|Our comments||Iron ore price volatility is likely to continue in 2022 and remains contingent on the direction of the crisis in China’s property sector.|
Resmed CDI (RMD:AU)1
|Share price||9/3/2022: $32.91|
|Revenue||US$1.80bn, an increase of 16% (on a constant currency basis).|
|NPAT||US$438m (on a non-GAAP basis), a rise of 12% (on a constant currency basis)|
|Key points||Sales grew strongly, driven by increased demand for sleep and respiratory care devices and aided by the Phillips product recall.|
|Our comments||Strong result that ensures RMD continues to be well-placed to benefit from the expected solid growth in the sleep apnea market.|
Steadfast Group Limited (SDF:AU)1
|Share price||9/3/2022: $4.40|
|Revenue||$521m, an increase of 19%|
|NPAT||$76m, a rise of 26%|
|Key points||A continuation of strong organic growth from the insurance broking and underwriting businesses, and cost savings. Performance of Coverforce acquisition and other broker acquisitions are performing in line with expectations.|
|Our comments||Another strong result by SDF, who also upgraded NPAT guidance for FY22 to between $163m and $170m.|
Sonic Healthcare (SHL:AU)1
|Share price||9/3/2022: $33.07|
|Revenue||$4.78bn, an increase of 7%|
|NPAT||$828m, a rise of 22%|
|Key points||SHL continues to benefit from record pandemic testing, as well as strong growth from its core business. Announced on-market share buyback of up to $500m over the next year.|
|Our comments||SHL’s strong cashflows has left its balance sheet in pristine shape. However, the lack of guidance for FY22 is largely due to the uncertainty around the path of COVID-19.|
Transurban Group (TCL:AU)1
|Share price||9/3/2022: $12.50|
|Revenue||$1.16bn, unchanged on H1FY21 (Proportional Toll Revenue)|
|NPAT||$805m, a fall of 4% (Proportional EBITDA)|
|Key points||Traffic continued to be impacted by government-mandated restrictions in response to COVID-19. TCL contribution to the troubled West Gate Tunnel Project increases by an additional $2bn. FY22 guidance maintained.|
|Our comments||Toll revenue is likely to recover as lockdowns across geographies decrease. This could lead to a welcome upgrade to guidance.|
Telstra Corporation Limited (TLS:AU)1
|Share price||9/3/2022: $3.92|
|Revenue||$10.50bn, a decrease of 4%|
|NPAT||$698m, a fall of 36%|
|Key points||Result once again affected by falling fixed line revenue (-7%). NBN revenue and other one-offs boosted pcp numbers, removing these resulted in underlying EBITDA rising 5%.|
|Our comments||Telstra’s result was solid and guidance for FY22 EBITDA of between $7.0bn and $7.3bn remains on track. Underlying growth supported by a 7% reduction in operating expenses and continued expansion of its mobile business.|
Wesfarmers Limited (WES:AU)1
|Share price||9/3/2022: $48.89|
|Revenue||$17.76bn, unchanged on the pcp|
|NPAT||$1.21bn, a decrease of 14%|
|Key points||Bunnings earnings declined slightly due to trading disruptions, supply chain woes and inflation pressures. Kmart and Target earnings were impacted by government-mandated store closures (approximately 25% of store trading days lost). Officeworks earnings were affected by additional costs incurred to ensure safe work practices and in fulfilling online sales.|
|Our comments||Easing of restrictions should allow earnings to rise in the second half, however a jump in inflation is likely to lead to wage increases across Wesfarmers’ businesses.|
1 ASX, Home [online], https://www2.asx.com.au/, (accessed 9 March 2022).
International Share Portfolio
Adobe Systems Incorporated (ADBE:US)2
|Share price||8/3/2022: US$431.53|
|Revenue||US$4.11bn, up 20% on the pcp|
|Underlying Net Income||US$1.54bn, an increase of 12.7% on the pcp|
|Key points||The company faces headwinds from a stronger US Dollar (reducing international earnings), however, it still guided for double-digit revenue growth in FY22 across its key segments of Digital Media and Digital Experience. Adobe Systems Incorporated announced completion of its Frame.io acquisition, deepening its offering in video collaboration. Overall, the business continues to guide at strength in demand for Creative Cloud with a Total Addressable Market growing to US$63bn in 2024.|
|Our comments||Result shows continued execution of the broader Adobe platform business with partners (businesses that piggyback off Adobe solutions and help spread their usage) also continuing to grow.|
Alibaba Group Holding Limited (BABA:US)2
|Share price||8/3/2022: US$97.50|
|Revenue||CNY242.58bn, up 9.7% on pcp|
|Underlying Net Income||CNY44.8bn, a decrease of 24.5%|
|Key points||The Chinese commerce business saw annual active consumers sit at 882m in December, a quarterly net add of 20m people. Penetration of less developed regions in China continues to track strongly.
Overall online physical goods Gross Merchandise Value (a proxy for overall sales through Alibaba platforms) grew in the single digits due to a mix of weaker market conditions and competition. International expansion continues apace with the retail business recording 301m annual active consumers in 2021, a quarterly net add of 16m.
Finally, the company’s Cloud business continues to see strong growth with revenue growing 19% on the same quarter in FY21 with the business reporting adjusted operating profitability for the nine months ended December 2021 in contrast to a loss in the pcp.
|Our comments||Business struggling against accelerated sales from 2021 where much of China was in lockdown (FY21 for BABA covers the period of Mar-20 to Mar-21).
Despite margin pressures from new competition and regulatory headwinds earnings growth looks set to resume in FY23.
Coupled with the de-rating in Chinese tech stocks more broadly this leaves the business attractively priced in our view albeit on lower returns on capital.
Amazon.com Inc. (AMZN:US)2
|Share price||8/3/2022: US$2,720.29|
|Revenue||US$137.4bn, up 9.4% on the pcp|
|Net Income||US$14.3b, an increase of 10.4% on the pcp|
|Key points||AWS continues to be the key driver of profitability with revenues and operating income rising 40% and 48% respectively (the latter is higher due to operating leverage).
Retail environment saw a reduction in consumer demand after being bolstered by work-from-home trends in 2020. This saw operating leverage decline. Another driver of greater losses was increasing inflationary pressures (higher wage increases for staff, as well as increased pricing from couriers).
Net income was bolstered by a one-off pre-tax valuation gain of $11.8bn thanks to the firm’s investment in EV producer Rivian Automotive. Removing this saw net income decline on pcp, reflecting the rising cost pressure and capital spending initiatives of the business.
|Our comments||AWS continues to be the core part of the Amazon value proposition with strong sales and stronger profitability growth a hallmark, and particularly notable given its already large size relative to other providers.
Inflation is a risk given the scale of the retail business for Amazon, in particular the number of employees and capital spending requirements.
Business execution remains on track with a commitment to spending for future growth unabated under CEO Andy Jazzy (who took over from founder Jeff Bezos last July). If record of past cycles plays out (large capital spending followed by sales and profit expansion), we will see an expansion of free cash flow growth resume in the years ahead.
Apple Inc. (AAPL:US)2
|Share price||8/3/2022: US$157.44|
|Revenue||US$123.95bn, up 11.2% on the pcp|
|Underlying Net Income||US$34.63bn, an increase of 20.4%|
|Key points||Apple’s sales and earnings both came in ahead of consensus.
iPhone sales were a key driver with revenues of US$71.63bn following the release of the new generation of iPhone 13.
Apple Services also continues to play an important role with revenue growth of 24% to $US19.5bn in sales.
|Our comments||iPhone quality vs other hardware options in mobiles remains elevated.
Apple expansion of ancillary Services offerings including the App Store also offers another recurring source of revenue to complement its strong device base with over US$1.8bn active Apple devices globally.
Firm guided to double-digit sales growth in the March quarter but also flagged a negative impact from supply chain issues on the firms cost base (although less than was experienced in the March quarter).
Abbott Laboratories (ABT:US)2
|Share price||8/3/2022: US$116.11|
|Revenue||US$11.47bn, up 12.8% on the pcp|
|Net Income||US$1.99bn, a decrease of 7.8%|
|Key points||COVID-19 test kits continue to be an upside surprise for Abbott (not dissimilar to the Sonic Healthcare experience domestically).
Stronger-than-anticipated demand for tests saw the company beat sales and earnings expectations.
Abbott guided FY22 earnings lower to at least US$4.78 per share (consensus: US$4.78).
|Our comments||Sustainability of COVID-19 test volumes remains a question mark on the business depending on vaccine effectiveness and proliferation. Market consensus looks to be pricing in a decline in topline revenues as testing volumes are assumed to decline.
Execution of other business segments (e.g. Medical Devices launching several new products) continues apace, however with overall earnings growth of 23.6% anticipated for 2022 according to consensus estimates.
Alphabet Inc. (GOOGL:US)2
|Share price||8/3/2022: US$2,542.09|
|Revenue||US$75.3bn, up 32.4% on the pcp|
|Net Income||US$20.6bn, an increase of 35.6%|
|Key points||Alphabet beat expectations for both earnings and revenue in the December quarter.
The company also announced a 20-for-1 stock split to take effect in July. If we take the price of US$2,542 as of 8 March this means investors will have 20 shares each priced at US$127.10 instead of a single share from July. This has no tax implications but rather makes the stock more accessible to retail investors by lowering the cost per share.
|Our comments||Alphabet continues to execute well in its core Search franchise with YouTube monetisation efforts continuing to show traction (revenue +25.4% year-on-year).
Google Cloud is also providing an important source of revenue growth (+44.6% year-on-year) and continues to narrow operating losses as it gains greater operating leverage.
Overall, the business remains well positioned for strong growth albeit at a slower pace than experienced in 2021. Pleasingly management has remained prudent in containing losses from its “moon-shot” Other Bets division.
Johnson & Johnson (JNJ:US)2
|Share price||8/3/2022: US$168.72|
|Revenue||US$24.8b, up 10.4% on the pcp|
|Adjusted Net Income||US$5.7b, up 14.4% on the pcp|
|Key points||Coronavirus vaccine sales are adding an anticipated US$3-3.5bn to topline revenue for FY22.
Business segments showing some signs of supply train pressure, such as Consumer Health. Other segments such as Pharmaceutical, are still anticipating above-market growth, while Medical Devices are anticipated to recover from COVID-19 headwinds (which saw lower demand for orthopaedics due to reduced elective surgery procedures).
|Our comments||Business remains positioned for a mix of organic and acquired earnings growth with recent new approvals across medical devices and pharmaceutical, showing the R&D pipeline paying dividends. Expect the business to remain a source of steady earnings growth and return of capital to investors.|
Microsoft Corporation (MSFT:US)2
|Share price||8/3/2022: US$275.85|
|Revenue||US$51.7bn, up 20.1% on the pcp|
|Net Income||US$18.8bn, an increase of 21.4%|
|Key points||The core commercial business continues to expand strongly with 32% growth for the year, driven by wins in larger corporate clients.
Cloud revenue growth also saw a 32% increase over the year to US$22.1bn.
Announced acquisition of Activision, a major video game producer, to deepen its gaming franchise.
|Our comments||Earnings growth continues to be strong across all segments with 46% growth in its Azure offering.
Microsoft software partners continue to position the firm attractively as an ecosystem, to continue growing earnings in low double-digits over the next 5 years (according to current consensus estimates).
Nestle S.A. (NESN:CH)2
|Share price||8/3/2022: CHF 110.36|
|Revenue||CHF 22.8bn, up 5% on the pcp|
|Operating Income||CHF 3.9bn, an increase of 12.2%|
|Key points||There has been an uptick in sales growth relative to prior years thanks to coronavirus trends.
Business execution in underperforming segments was another feature with areas, such as US Frozen meals recording 9.3% organic growth.
Expansion of the Health Science segment continues apace with 13.5% top line growth.
|Our comments||Nestle’s overall portfolio positioned well for mid-single digit revenue growth and slightly higher earnings growth thanks to pricing power.
Valuation remains reasonable in our assessment for a strong compounder able to grow at a reasonably high level and return excess capital back to shareholders as dividends and buybacks.
Union Pacific Corporation (UNP:US)2
|Share price||8/3/2022: US$253.47|
|Revenue||US$5.73b, up 12% on the pcp|
|Net Income||US$1.71b, an increase of 6.9%|
|Key points||Revenue growth has been driven by a combination of shifting business mix (some cargo is more profitable than others) as well as price increases, which helped offset weaker volumes in products such as cars (due to global supply chain issues). This result was achieved despite business volumes being down 4%.
The result was also complicated by the COVID-19 impact on locomotive crew availability, reducing train productivity.
Outcomes in safety and operational performance missed internal targets and remains an area of focus for the business into 2022.
|Our comments||The business continues to win new customers and is proactive in capital management with $1.4bn worth of shares bought back in Q4.
National rail volumes are continuing to track at strong levels in the US (based on weekly data), which will support earnings growth in FY22 albeit at a slower pace.
Signs of recovery in automobile volumes, starting with auto parts should be supportive of volume growth in 2022.
Overall combination suggests the profile as a steady compounder and remains intact, with a combination of high single digit earnings growth and dividends remaining attractive.
Visa Inc. (V:US)2
|Share price||8/3/2022: US$191.71|
|Revenue||US$7.06b, up 24.1% on the pcp|
|Net Income||US$3.9b, an increase of 24.8%|
|Key points||Visa experienced stronger-than-expected results with upgraded guidance for FY22 as management expected return to 2019 levels for cross-border travel by the end of 2022 (compared to mid-2023 previously).
Omicron impact proved short-lived with Visa also gaining volumes from Buy Now Pay Later sales, implying that growth of this new space in fintech is not materially disrupting growth.
Amazon and Visa reached an interim deal following a dispute over Visa surcharges in regions, such as Australia and the UK.
Acquired Currencycloud, a global platform focused on providing innovative foreign exchange solutions for cross-border payments, which has processed over US$100bn in transactions since 2012.
|Our comments||Secular trends remain intact with gradual transition from cash to electronic payments persisting even in more established markets, such as the US and Europe.
Earnings have surprised levels pre-pandemic with disruption to cross-border volumes now easing.
Overall prospects for continued earnings growth (double-digits over next few years per consensus) appear reasonable even in the context of the business’ derating with the broader correction in global markets to start the year.
Impact of Russian exit is likely to be immaterial from our perspective, given its small scale relative to the rest of Visa’s operations.