Clarity for the Economy
Australia has at least two of three key components in place that are necessary to restart its economy: historically low interest rates and a rapidly falling currency. And the country’s upcoming election on Sept. 7 could finally provide clarity for a third factor that’s been wanting as of late–business confidence, which, in turn, influences decisions to invest and borrow.
According to National Australia Bank Ltd’s monthly survey of over 400 firms, business confidence fell to an eight-month low in July, for a reading of -2.8, which means pessimists outnumber optimists. The survey hit a one-year low back in November, when the reading fell to -8.9, then jumped as high as 2.6 in January, before it began its extended slump. For greater context, the reading’s five-year high was 19.4 back in November 2009, while prior to the Great Recession readings typically ranged from 5 to 15.
Of course, measures of confidence often lag changes that are already underway. The Reserve Bank of Australia (RBA) has been on an easing cycle since it first began cutting its cash rate in late 2011, and this key rate now stands at an all-time low of 2.5 percent. And traders are pricing in a 56 percent chance of another cut of 25 basis points by year-end, based on swaps data collected by Bloomberg. In its latest quarterly report on monetary policy, the RBA lowered its forecast for full-year economic growth to 2.25 percent from its earlier forecast of 2.5 percent, which provides support for further easing.
Nevertheless, the Australian dollar had, until recently, remained stubbornly high in US dollar terms, which was problematic for the resource sector since most commodities are priced in US dollars. The Aussie currently trades just below USD0.92, down about 13.4 percent from its year-to-date high of USD1.06 in early January, even after a strong rebound following its recent low of USD0.89 on Aug. 2. Economists have been racing to lower their forecasts for the currency, with the Aussie now predicted to bottom at USD0.86 in 2016, based on data collected by Bloomberg.
The selloff in the Aussie helps make the country’s exports more competitive globally, while it also boosts demand for products domestically as they become more affordable relative to imports. As just one example of how a falling currency is crucial for an economic turnaround, the CEO of Arrium Ltd (ASX: ARI, OTC: ARRMF), Australia’s fourth-largest iron ore producer, has estimated that each decline of USD0.01 in the currency adds AUD10 million to AUD12 million to the company’s EBITDA (earnings before interest, taxation, depreciation and amortization).
Despite a more propitious financial environment, National Australia Bank’s index of business conditions, which measures hiring, sales and profits, only inched up to -6.6, a modest improvement from last month’s reading of -7.5, which was a four-year low. During frothier times, such as prior to the Great Recession, the index’s readings tend to range from 10 to 15.
For now, the business community is waiting to see who prevails at the polls. The federal election cycle has been unusually protracted by Australian standards, as the ruling party typically calls for elections just six weeks out. This time around, former Prime Minister Julia Gillard called for a September election back in late January, with the hope that the considerable lead time would give her the opportunity to shore up support among the electorate, as well as her fellow Labor Party members.
But Labor’s dismal poll numbers, which showed a persistent double-digit gap between it and the Liberal-National coalition, ultimately led to her ouster in June, when she lost an internal-party vote, known as a leadership spill, to backbencher Kevin Rudd. This was the ultimate turnabout for Rudd, as Gillard had replaced him as prime minister almost exactly three years earlier in a similar rout. After some speculation that the election could be moved forward to August, in the end Rudd scheduled it for a week earlier than originally planned.
As a result of his own unceremonious removal from office, Rudd has enjoyed some sympathy from voters, while also making conciliatory gestures to remake unpopular Labor policies, such as the carbon tax. That’s helped narrow Labor’s polling gap from a 14 point deficit in late June, when Gillard was still prime minister, to a 4 point deficit this past week, according to data from surveys conducted by Newspoll for The Australian.
Regardless of who wins the election, the carbon tax will be pared significantly. While the Coalition opposition has pledged to scrap it completely, Labor intends to reduce the cost of emissions from a fixed price of AUD25.40 per metric ton to a floating price based on a cap-and-trade scheme. According to Climate Change Minister Mark Butler, that should cause the price of carbon emissions to fall to AUD6 per metric ton, which is more in line with the prices that prevail globally.
Meanwhile, based on data from the power futures market, traders are betting that the carbon tax will continue to exist in at least some form, as futures indicate a price of AUD10 per metric ton in 2015, which is a rise from AUD7 two months ago.
In addition to eliminating the carbon tax, the Liberal-National Coalition also plans to abolish the Minerals Resource Rent Tax (MRRT), a tax of 30 percent on the super profits for mining companies with profits in excess of AUD75 million. In a fitting example of how politicians take wealth creation utterly for granted, the tax was enacted in July of last year, just in time for the resource boom to hit its peak. As a result, the tax is now projected to collect just AUD6 billion over the next four years, a stark contrast to the government’s boom-time projection of AUD22.5 billion.
Finally, there’s some debate between politicians over the size of the government’s deficit, which is projected to rise to AUD30.1 billion this fiscal year. Relative to the rest of the developed world, however, this issue probably seems largely academic. That deficit amounts to just 1.9 percent of Australia’s gross domestic product (GDP), compared with a US budget deficit that’s equivalent to 5.4 percent of its economy. Overall, the Australian government’s net debt is expected to peak at just 13 percent of gross domestic product (GDP).
So in just another three weeks, business leaders will have a better idea of what to expect from the government in terms of policymaking and can then start planning accordingly, whether they’re dealing with a chastened Labor Party or a newly ascendant Liberal-National Coalition.
AE Portfolio Aggressive Holding WorleyParsons Ltd (ASX: WOR, OTC: WOPEF, ADR: WOPEY) is off the Watch List after management declared a final dividend of AUD0.51, in line with the prior corresponding period, and guided to earnings growth in fiscal 2014. See Portfolio Update for more on WorleyParsons’ fiscal 2013 results.
WorleyParsons is a buy under USD24.
Goodman Fielder Ltd (ASX: GFF, OTC: GDFLF, ADR: GDFLY) also earned its way off the Watch List by declaring a final dividend of AUD0.03 per share.
Goodman Fielder announced during a conference call to discuss fiscal 2013 first-half results that it will resume payouts with a final dividend in respect of fiscal 2013, with a stated policy of distributing 50 percent to 80 percent of net profit after tax (NPAT).
The maker of household brands reported NPAT of AUD102 million for fiscal 2013, up from a loss of AUD146.9 million a year ago despite an 11 percent decline in sales to AUD2.23 billion.
The company had abandoned its dividend during a process that saw it record impairments, restructuring costs and foreign exchange losses of AUD267 million in 2012 and AUD300 million against goodwill in its fresh baking division in 2011.
Net debt fell by 40 percent to AUD434.5 million.
Goodman Fielder still faces tough markets and rising input costs, as management noted that retail trading conditions, particularly in Australia and New Zealand “remain challenging, with continuing pressure on product volumes and pricing.” Management provided no specific guidance for 2014 but said it expects “further progress.”
This is now a much stronger company financially, with a “much clearer focus on the core categories where there is capacity to leverage the company’s leading brands.” Goodman Fielder is a buy under USD0.75.
As for dividend cutters over the past month, Bradken Ltd (ASX: BKN, OTC: BRKNF), which hadn’t appeared on the Dividend Watch List, paid a fiscal 2013 final dividend of AUD0.18 per share, down from the AUD0.215 final dividend it paid for fiscal 2012. Full-year dividends were down 7 percent to AUD0.38.
Fiscal 2013 sales revenue was down 10 percent to AUD1.31 billion, as operating earnings before interest, taxation, depreciation and amortization (EBITDA) slipped 2 percent but beat guidance at AUD214 million. Bradken is a buy under USD5.25.
UGL Ltd (ASX: UGL, OTC: UGLFF) declared a final dividend of AUD0.05 per share, down from AUD0.36 a year ago as the slowdown in mining activity, delays and execution issues with projects, particularly in power, and general economic malaise
Fiscal 2013 operating revenue declined by 12 percent to AUD4.2 billion, though underlying NPAT of AUD92.1 million was in line with guidance. Management also announced a plan to de-merge its property services business. UGL is a hold.
Southern Cross Media Group Ltd (ASX: SXL, OTC: SOUTF) reduced its final dividend from AUD0.05 a year ago to AUD0.045, as it reported net profit after tax of AUD96 million, ahead of guidance of AUD90 million to AUD95 million.
With the final dividend the company’s full-year payout ratio came to 66 percent, in line with company policy. Hold.
Tabcorp Holdings Ltd (ASX: TAH, OTC: TABCF) declared a final dividend of AUD0.08, down from AUD0.11 a year ago. Fiscal 2012 revenue was up 2 percent to AUD2.003 billion, though net profit from continuing operations slipped 13.1 percent to AUD139.1 million.
Management’s focus for fiscal 2014 is on digital wagering and retaining market share amid a challenging market. Tabcorp is a buy under USD3.35.
GUD Holdings Ltd (ASX: GUD, OTC: GUDHF, ADR: GUDDY) management declared a final dividend of AUD0.26 per share, down from AUD0.35 a year ago. Management also declared a special dividend of AUD0.10 per share, finishing up the capital management strategy it announced along with the sale of the Breville unit in February 2012.
GUD had announced on June 20 that it expects full-year fiscal 2013 underlying profit to come in 20 percent below fiscal 2012.
Reported EBIT was in line with guidance, down 20 percent AUD56.4 million. Total group sales were down 2 percent to AUD596.5 million, as sales increased in all business segments with the exception of Consumer Products, where both Sunbeam and Oates reported lower sales in the period. GUD is a buy for speculators under USD6.50.
Because Australian companies typically report official earnings and declare dividends only twice a year, changes–additions to and subtractions from–the Dividend Watch List will be rarer than, for example, the Dividend Watch List compiled for AE’s sister letter Canadian Edge.
We’re in the midst of fiscal 2013 reporting season Down Under, during which the majority of companies in the How They Rate coverage universe will post financial and operating results for the 12 months from July 1, 2012, through June 30, 2013. Others will report calendar 2013 first-half results.
Basically the entire Basic Materials section of the How They Rate coverage universe can now be considered on the List, in one sense because all those companies are exposed to volatile resource prices, in another, more concrete way because most announced lower dividends this period than they did for the last one. And that’s one of the criteria that will get you a place on the List.
Several Basic Materials companies in fact “omitted” interim dividend payments, which effectively makes their reductions 100 percent.
The Watch List is rather lengthy, a reflection of longstanding dividend practice for Corporate Australia, which as a general rule is not bound by strict dividend rates but rather by payout ratio ranges when it comes to “capital management” policy.
Australian companies customarily maintain policies of paying out a specified percentage based on particular earnings metrics, whether that metric is statutory net profit after tax (NPAT), underlying NPAT or operating cash flow.
Practically speaking, dividend rates will often vary more than they do for Canadian or US companies, which are almost universally pledged to maintaining dividend rates, often at the cost of tapping balance sheets in the absence of sufficient cash flow to cover obligations to shareholders.
This latter is fine in the short term, and it can be manageable in the longer term as well. But Australian firms are traditionally more debt-averse than their North American counterparts.
It’s important to note, too, that the CE Dividend Watch List is based on the monthly distribution scheme established during the income trust era, which, to the benefit of investors everywhere, persists even after the forced conversion to traditional corporations for many of these stocks.
Australia’s twice-yearly rhythm varies as well from the quarterly dividend arrangement to which most US companies adhere.
With recent dividend reductions and/or changes to guidance or policies that suggest non-regular payment the following companies have declared their worthiness for inclusion on the Dividend Watch List.
Basic Materials
Aditya Birla Minerals Ltd (ASX: ABY, OTC: ABWAF) reported a 1 percent rise in fiscal 2013 revenue to AUD502.3 million, but management reported a net loss of AUD8.3 million and didn’t declare a final dividend.
Company policy is “to seek to maximise cash returns to Shareholders whilst having regard to ensuring a sound financial structure for the Company and providing for value accretive development and exploration activities and targeted growth opportunities.”
Because there’s no clarity on the payment interval this stock will probably be an emeritus member of the Dividend Watch List.
Without a consistent dividend payment to compensate speculation of a return to more normal economic growth and a corresponding rebound in copper prices, Aditya Birla is a hold.
Alumina Ltd (ASX: AWC, NYSE: AWC) didn’t declare a dividend for 2012 when it reported results on Feb. 21, 2013, which was a bit of a surprise in light of the USD20 million dividend it received from the AWAC joint venture. Hold.
Aquarius Platinum Ltd’s (ASX: AQP, OTC: AQPBF) fiscal 2013 loss before items narrowed to AUD61 million from AUD154 million, as the company reported a net loss after tax of AUD288 million due to AUD226 million in impairments. The company has AUD103 million cash on hand as of June 30, 2013, but management didn’t declare a final dividend.
Platinum prices remain depressed, and the company’s operations are subject to political and social instability in Africa. Hold.
Arrium Ltd (ASX: ARI, OTC: ARRMF, ADR: OSTLY) reduced its interim dividend by 33 percent to AUD0.02 per share, as its fiscal 2013 first-half loss deepened from AUD447.2 million from AUD74 million a year ago due to a AUD474 million non-cash writedown on the value of its steel manufacturing unit and its distribution business due to a weak operating environment, sluggish construction activity and the impact of a strong Australian dollar.
Revenue for the period declined to AUD3.32 billion from AUD3.8 billion. Management is focused on paying down debt. Hold.
Ausdrill Ltd (ASX: ASL, OTC: AUSDF) management recently reiterated that fiscal 2013 net profit after tax (NPAT) will come in between AUD90 million to AUD96 million on revenue of AUD1.15 billion to AUD1.17 billion. But this forecast is the result of a downward revision announced in April.
Ausdrill’s payout ratio for the first half of fiscal 2013 was just 39 percent, and the company has a debt-to-assets ratio of 27 percent. And there are no maturities until 2019. Ausdrill has never cut its dividend from one corresponding period to the next.
The company has broadened its production mining services into iron ore via core drill and blast as well as dewatering services. That will help mitigate the impact of gold’s decline, as production of the yellow metal accounts for the biggest share of Ausdrill’s revenue.
And it’s possible that scaled-back activity will allow the company to save in other ways, including CAPEX and operating costs, preserving its ability to make cash returns to shareholders.
But the downward revision is sufficient to earn Ausdrill a place on the Dividend Watch List. Ausdrill remains a buy under USD2 for aggressive investors.
BlueScope Steel Ltd (ASX: BSL, OTC: BLSFF) discontinued its dividend after posting a AUD12 million net loss for the first six months of fiscal 2013. The company posted a fiscal 2012 net loss after tax of AUD1.044 billion, better than the AUD1.054 billion loss for fiscal 2011.
Management expects emerging signs of improvement it noted during the second quarter of the fiscal year to continue and forecast a “small” underlying net profit after tax for the second half of the fiscal year. Hold.
Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUGY) didn’t declare an interim dividend, as fiscal 2013 first-half EBITDA declined by 26 percent and management’s focus is on preserving cash during what remains a period of rapid capacity expansion.
The board will “consider” declaring a full-year dividend in August. Hold.
Grange Resources Ltd (ASX: GRR, OTC: GRRLF) reduced its 2012 final dividend to AUD0.01 per share from AUD0.03 in 2011. Sales volume growth was solid, but a realized price decline of 31 percent was a significant hurdle to overcome. Hold.
Iluka Resources Ltd’s (ASX: ILU, OTC: ILKAF, ADR: ILKAY) 2012 final dividend was AUD0.10, down from AUD0.55 a year ago.
Management’s trading update for the second quarter of 2013 ahead of its full operating and financial result report for the first half of the year showed that production was up 15 percent, while sales increased 73 percent to AUD242 million.
Management also boosted its full-year production guidance. Buy under USD10.
Independence Group NL (ASX: IGO, OTC: IPGDF) reduced its fiscal 2013 interim to AUD0.01 compared to AUD0.02 a year ago.
This is despite the fact that first-half NPAT was up 111.4 percent and revenue increased by 15.7 percent. Management is preserving cash to focus on development of its Tropicana gold project, which is 96 percent complete and on course to begin production in September 2013, amid still-soft nickel prices.
Management reported a fiscal 2013 fourth-quarter loss of AUD4.3 million due to a delay of a June copper shipment until July. Unaudited NPAT for 2013 was AUD18.9 million, though full results will be available on or about Aug. 30. Tropicana should drive cash flow. Independence Group is a buy under USD3.50.
Kingsgate Consolidated Ltd (ASX: KCN, OTC: KSKGF) cut its interim dividend by 50 percent to AUD0.05 per share.
Revenue for the first six months was up 10 percent but costs surged by 41.2 percent, taking a 19 percent bite out of gross profit. Hold.
Medusa Mining Ltd (ASX: MML, OTC: MDSMF) didn’t declare an interim dividend, despite the fact that fiscal 2013 first-half revenue was up 28 percent, EBITDA was up 24 percent and NPAT grew by 19 percent.
Fiscal 2013 fourth-quarter production from its key Co-o gold mine was 15,642 ounces of gold at USD355 per ounce. Management guided to fiscal 2014 first-quarter output of 17,000 ounces, with production ramping up to 35,000 ounces in the second quarter. Medusa Mining is a buy under USD2.
Mount Gibson Iron Ltd (ASX: MGX, OTC: MTGRF) maintained its fiscal 2013 interim dividend at AUD0.02 per share.
The company posted first-half revenue growth of 10 percent, though costs were up 18 percent and realized prices were down 20 percent. Although it didn’t cut this time, the fiscal 2013 final dividend remains extremely sensitive to a continued recovery in iron ore prices. Buy under USD0.50.
OM Holdings Ltd (ASX: OMH, OTC: OMHLF) didn’t declare a final dividend for 2012. The company hasn’t made a cash payout to shareholders since May 2011. Hold.
Oz Minerals Ltd (ASX: OZL, OTC: OZMLF, ADR: OZMLY) declared an interim dividend for fiscal 2013 of AUD0.10, in line with the prior corresponding period.
But that was small comfort in the light of an underlying loss of AUD36.1 million for the first half. Net loss after tax was AUD268 million, driven by writedowns of AUD231.9 million at Prominent Hill.
Oz Minerals’ cash pile has dwindled to about AUD550 million from nearly AUD1 billion, but management was relatively upbeat, noting that the worst of the metals slump is over. Buy under USD4.50.
Panoramic Resources Ltd (ASX: PAN, OTC: PANRF) actually resumed its dividend with an interim declaration of AUD0.01 per share after not paying a final dividend for fiscal 2012. But the fiscal 2013 interim payment was 50 percent lower than the fiscal 2012 interim payment.
Management appears to have things pointed in the right direction, as operating costs–one of the things it can control, as opposed to commodity prices–were flat. But this is for speculators betting on a stimulus-driven global economic turnaround. Buy under USD0.35.
Sedgman Ltd (ASX: SDM, OTC: SGTDF) reduced its interim dividend by 33 percent to AUD0.03 after reporting a 20.9 percent decline in fiscal 2013 first-half revenue.
The company’s focus on a still-struggling coal market, a strong aussie and project deferrals weighed on management. This too is for aggressive speculators betting on a global economic rebound and corresponding bounce-back for coal prices. Hold.
TFS Corp (ASX: TFC, OTC: TFSCF) omitted its interim dividend entirely and in fact hasn’t paid out anything since November 2011. Hold.
Western Areas NL (ASX: WSA, OTC: WNARF) reduced its fiscal 2013 interim dividend by 60 percent compared to fiscal 2012, as first-halt EBITDA declined by 36.2 percent and NPAT fell to AUD2.12 million from AUD24.1 million a year ago.
Cash costs were better than forecast, but realized nickel prices were, in management’s words, at “depressed” levels. Western Areas is Australia’s lowest-cost nickel miner and merits a look from aggressive speculators. Buy under USD3.60.
Whitehaven Coal Ltd (ASX: WHC, OTC: WHITF) didn’t declare an interim dividend, as fiscal 2013 first-half revenue declined 17.5 percent and management reported a AUD47 million net loss on lower coal prices and a strong aussie.
But fiscal 2013 fourth-quarter coal production was up 53 percent year over year to 2.5 million metric tons. And management announced an operational review focused on cutting costs.
We’ll know about the final dividend when management reports results on Aug. 27. The fourth-quarter output gain justifies an upgrade for aggressive speculators to heed for a company whose growth will be driven by fully funded tier 1 asset development. Buy under USD2.
Consumer Goods
Billabong International Ltd (ASX: BBG, OTC: BLLAF, ADR: BLLAY) didn’t declare an interim dividend, as fiscal 2013 first-half global sales slid 8.1 percent and the surfwear company posted a AUD536.6 million net loss.
Adjusted EBITDA was up by 9.1 percent, however, as cost cuts and store closures had a positive impact. Two separate groups continue to kick the tires here, and a deadline for completing due diligence has been established. Sometime shortly after March 28, 2013, we’ll know whether shareholders will be rescued by one of the competing AUD1.10 per share bids. Sell.
Ridley Corp (ASX: RIC, OTC: RIDYF) didn’t declare an interim dividend, though fiscal 2013 first-half revenue was up 6 percent. Management did, however, report a AUD12.7 million net loss due to AUD24.9 million of non-recurring writedowns and noted the absence of retained profits in omitting the payout. Buy under USD0.85.
Consumer Services
APN News & Media Holdings Ltd (ASX: APN, OTC: APNDF) didn’t declare an interim dividend for 2013 after omitting its final dividend for 2012, as it continues to focus on repairing its balance sheet.
Management reported a net profit of AUD12.8 million for the six months ended June 30, turning from a loss of AUD308.2 million a year ago. Revenue was up 5 percent to AUD426.6 million, helped by AUD31.9 million from asset sales.
The advertising market remains challenged, and debt remains a concern. Sell.
David Jones Ltd (ASX: DJS, ADR: DJNSY) noted in a sales and revenue update that fiscal 2013 third-quarter like-for-like sales declined 3.4 percent year over year, as total sales slipped 2.2 percent to AUD391.1 million from AUD399.8 million a year ago. Management attributed the shortfall to an unusually warm winter’s impact.
The company cut its final dividend for fiscal 2012 to AUD0.07 per share from AUD0.15 a year ago. Hold.
Harvey Norman Holdings Ltd (ASX: HVN, OTC: None) reduced its interim payout by 10 percent from AUD0.05 a year ago to AUD0.045 for the first half of fiscal 2013. The company reported a 7.3 percent slide in global sales, as like-for-like sales slipped by 5.3 percent.
Management did note, however, that January 2013 sales were up 4.1 percent overall and 5.8 percent on a like-for-like basis. That’s enough to merit an upgrade from “sell.” Hold.
Myer Holdings Ltd (ASX: MYR, OTC: MYGSF) reported that fiscal 2013 third-quarter comparable sales rose 0.4 percent and overall sales were up 0.5 percent to AUD652.5 million, as it posted its fourth consecutive quarter of positive comparable sales growth.
Myer maintained its fiscal 2013 interim dividend at AUD0.10 per share after it cut its fiscal 2012 final distribution to AUD0.09 from AUD0.115. Buy under USD2.50.
Seven West Media Ltd’s (ASX: SWM, OTC: WANHF) interim dividend of AUD0.06 was level with what it paid as a final dividend for fiscal 2012 but down by 66.3 percent from a year ago.
Revenue for the first half of fiscal 2013 was down 3.4 percent, and management reported a net loss of AUD109.34 million. The stock has more than doubled off the five-year low it hit in early November 2012. Buy under USD2.
Tatts Group Ltd (ASX: TTS, OTC: TTSLF) reduced its interim dividend by 27.3 percent, though revenue from continuing operations for the first half of fiscal 2013 was up 16 percent, EBITDA surged at a like rate and NPAT grew by 26 percent.
The payout ratio for the half-year was 86 percent versus 88 percent a year ago, though the fiscal 2012 was based on cash flow that included contribution from the now-discontinued Victoria gaming machine business. Tatts Pokies, which came on line during the recently concluded period, will likely help Tatts off the List come August. Buy under USD3.
Financials
QBE Insurance Ltd (ASX: QBE, OTC: QBEIF) reduced its final dividend for 2012 by 60 percent to AUD0.10 after it cut its interim distribution to AUD0.40 from the AUD0.62.
Cash profit for 2012 was up 32 percent, statutory NPAT increased by 8 percent, though the latter figure missed guidance due to higher amortization and impairment charges. But management is setting up to handle the impact of Superstorm Sandy and the January rains that hammered Queensland. Hold.
Industrials
Boart Longyear (ASX: BLY, OTC: BOARF, ADR: BLGPY) slashed its final dividend in respect of 2012 by 82.1 percent, bringing the full-year payout reduction to 28.8 percent. Revenue for the year was flat, but EBITDA was down 29 percent and statutory NPAT slid by 58 percent. Slowing global mining activity and corporate restructuring have taken a serious toll. Hold.
Boral Ltd (ASX: BLD, OTC: BOALF) reduced its fiscal 2013 interim dividend to AUD0.05 per share from AUD0.075 a year ago, though first-half results exceeded expectations and management issued relatively upbeat guidance for the balance of the year.
The company posted a net loss of AUD25.3 million, but profit before significant items was AUD55.2 million, better than management’s forecast. Sales, meanwhile, were AUD2.8 billion.
Boral had cut its fiscal 2012 final dividend by 50 percent to AUD0.035 per share. Hold.
Emeco Holdings (ASX: EHL, OTC: None) maintained its interim dividend at AUD0.025 per share, though fiscal 2013 first-half operating NPAT was down 14 percent. Hold.
GWA Group Ltd (ASX: GWA, OTC: GWAXF, ADR: GWAXY), via a trading update ahead of its Aug. 21 announcement of full financial and operating results, noted that fiscal 2013 revenue declined 6 percent year over year and earnings before interest and taxation (EBIT) was off 13 percent to AUD65.8 million.
GWA reduced its interim dividend by 36.8 percent to AUD0.06 from AUD0.095 a year ago.
Company policy is to pay 80 percent to 95 percent of NPAT, up from 70 percent to 80 percent. But the AUD0.18 per share “floor” that had underpinned the policy has been removed. Buy under USD2.
Oil & Gas
Caltex Australia Ltd (ASX: CTX, OTC: CTXAF) management recently guided to replacement cost operating profit of AUD160 million to AUD175 million for the first half of 2013, 30 percent below the consensus estimate due to outages and a weaker Australian dollar.
Caltex’ 2012 final dividend was 17.8 percent lower than the prior corresponding period, reflecting the closure of the Kurnell refinery. Operations and financials were otherwise healthy.
The stock price has come back into value range. Buy under USD16.50.
Technology
Codan Ltd (ASX: CDA, OTC: None) management recently backed off its robust earnings growth forecast for fiscal 2013.
In mid-June Codan announced that some of the African markets where its largest division, Metal Detection, sells gold detectors “have experienced a level of instability” due to “major civil unrest.” As a result, although Codan is still tracking to the biggest second-half profit in the company’s history, it won’t be as strong as the first half.
Codan now expects full-year net profit after tax “in the region of” AUD45 million. That would be a new company record and it would be double the NPAT reported for fiscal 2012. Hold.
Redflex Holdings Ltd’s (ASX: RDF, OTC: RFLXF) interim dividend was 33 percent lower than it was a year ago at AUD0.02 per share. The company completed a restructuring that will lead to AUD10 million in cost savings. It will report fiscal 2013 full-year results on or about Aug. 23.
Management had previously disclosed an investigation into the relationship between one of its employees and a city official that involved improper benefits passing from the former to the latter. Chicago, which accounted for approximately 13 percent of fiscal 2012 revenue, will not allow Redflex to bid on impending contracts for new traffic light camera installations.
Fiscal 2013 first-half NPAT was below forecast at AUD3.6 million, revenue was down 7.2 percent and EBITDA was off by 25.8 percent. Sell.
Telecommunications
Telecom Corp of New Zealand (ASX: NZT, OTC: NZTCF) reduced its interim dividend by 11.1 percent after a significant restructuring of the company in calendar 2012. Management reported comparable adjusted EBITDA growth of 3.7 percent, as it appears the business is now relatively stable based on its recent history.
But management also revised downward full-year adjusted EBITDA guidance. Sell.
We continue to track the How They Rate coverage universe and beyond for Australia-based companies that afford US investors the convenience of ADR investing, either on their initiative or via the effort of an interested financial institution.
Here again is our primer on Australian stocks, US OTC symbols and ADRs.
The great majority of the companies under How They Rate coverage have US symbols, many because they actively seek to raise capital here on their own accord. That means they comply, to varying degrees, with US Securities and Exchange Commission filing requirements for foreign companies and with US accounting principles. Others trade here because a sponsoring institution has effectively created a secondary market for the shares, without the underlying company’s active participation.
Shares traded on US OTC markets bearing a final “F” in their five-letter symbols are basically home-listed shares trading in a market created by and for US institutions. Individuals can buy and sell here, too. Prices basically reflect ASX prices and also reflect changes in the relationship between the US dollar and the Australian dollar. One “F” share represents one ASX-listed share. The dividend you receive in respect of an “F” share is the dividend paid in respect of the ASX-listed share, adjusted for currency effects.
An ADR is a certificate that represents stock of a foreign company. ADRs are listed on US stock exchanges or the OTC Bulletin Board or Pink Sheets. Those that trade OTC have five-letter symbols ending with the letter “Y.” All transactions, including dividend payments, are conducted in US dollars.
One ADR certificate may represent one or more shares of the foreign stock; it can also represent a fraction of a share. For example, one Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) ADR, which trades under the symbol TLSYY, is worth five ordinary shares that trade on the Australian Securities Exchange under the symbol TLS. Australia & New Zealand Banking Group Ltd’s (ASX: ANZ, OTC: ANEWF, ADR: ANZBY) ADR, ANZBY, is worth one Australia-listed ANZ share.
Because many ADRs don’t have a one-to-one ratio between the depositary receipts and the shares of stock, financial ratios are often not included in stock listings. Data in Australian Edge Portfolio tables and How They Rate is derived based on Australian Securities Exchange symbols so is as complete as you’ll find anywhere.
Foreign companies themselves often “sponsor” the creation of their own ADRs. These are called “sponsored ADRs.” There are three levels of sponsorship.
A Level I sponsored ADR is created by a company because it wants to extend the market for its securities to the US. It does not, however, want to register with the Securities and Exchange Commission (SEC) or conform to generally accepted accounting principles (GAAP). Level I ADRs trade on the OTC Bulletin Board or Pink Sheets trading systems, usually but not exclusively by institutional investors. Australia & New Zealand Banking Group’s is a Level I ADR.
Level II and Level III sponsored ADRs must be registered with the SEC, and financial statements must be reconciled to generally accepted accounting principles. A Level II ADR requires partial compliance with GAAP, while a Level III ADR requires complete compliance. A Level III sponsorship is require if the ADR is a primary offering and is used to raise capital for the company. Only Level II and Level III sponsored ADRs can be listed on the New York Stock Exchange (NYSE), the American Stock Exchange or Nasdaq. Telstra Corp sponsors a Level III ADR in the US, meaning it’s actively seeking to raise capital here.
An unsponsored ADR is created by a US investment bank or brokerage that buys ordinary shares on the underlying company’s home market then deposits them in a local custodian bank. This depositary bank then issues shares that represent an interest in the stocks and handles most of the transactions with American investors, serving both as transfer agent and registrar for the ADR.
The shares of the foreign stock held in the custodian bank are called “American Depositary Shares,” although this term is sometimes used as a synonym for “American Depositary Receipts.” Unsponsored ADRs can’t be listed on the major American stock exchanges because they aren’t registered with the SEC and lack other necessary qualifications.
The price of an ADR is determined by supply and demand but will generally track the price of the underlying ordinary share. When dividends are paid, the custodian bank receives it and withholds any foreign taxes, exchanges it for US dollars and then sends it to the depositary bank, which then sends it to the investors.
The US depositary bank handles most of the interaction with US investors, including rights offerings, stock splits and stock dividends. Sponsored ADR investors may receive communications, including financial statements, directly from the company.
Here is a list of companies in the How They Rate coverage universe that have an ADR listing in the US, along with the number of ordinary ASX-listed shares the ADR represents.
Basic Materials
- Alumina Ltd (ASX: AWC, NYSE: AWC)–One ADR is worth four ordinary shares.
- Aquarius Platinum Ltd (ASX: AQP, OTC: AQPBF, ADR: AQPTY)–One ADR is worth two ordinary shares.
- Arrium Ltd (ASX: ARI, OTC: ARRMF, ADR: OSTLY)–One ADR is worth 20 ordinary shares.
- BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–One NYSE-listed ADR is worth two ordinary shares.
- BlueScope Steel Ltd (ASX: BSL, OTC: BLSFF, ADR: BLSFY)–One ADR is worth five ordinary shares.
- Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUMY)–One ADR is worth five ordinary shares.
- Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY)–One ADR is worth five ordinary shares.
- Kingsgate Consolidated Ltd (ASX: KCN, OTC: KSKGF, ADR: KSKGY)–One ADR is worth one ordinary share.
- Mineral Resources Ltd (ASX: MIN, OTC: MALRF, ADR: MALRY)–One ADR is worth one ordinary share.
- Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–One ADR is worth one ordinary share.
- Oz Minerals Ltd (ASX: OZL, OTC: OZMLF, ADR: OZMLY)–One ADR is worth 0.5 ordinary shares.
- Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–One ADR is worth one ordinary share.
Consumer Goods
- Billabong International Ltd (ASX: BBG, OTC: BLLAF, ADR: BLLAY)–One ADR is worth two ordinary shares.
- Goodman Fielder Ltd (ASX: GFF, OTC: GDFLF, ADR: GDFLY)–One ADR is worth 10 ordinary shares.
Consumer Services
- Crown Ltd (ASX: CWN, OTC: CWLDF, ADR: CWLDY)–One ADR is worth two ordinary shares.
- David Jones Ltd (ASX: DJS, ADR: DJNSY)–One ADR is worth one ordinary share.
- Metcash Ltd (ASX: MTS, OTC: MCSHF, ADR: MHTLY)–One ADR is worth six ordinary shares.
- TABCORP Holdings Ltd (ASX: TAH, OTC: TABCF, ADR: TACBY)–One ADR is worth two ordinary shares.
- Wesfarmers Ltd (ASX: WES, OTC: WFAFF, ADR: WFAFY)–One ADR is worth 0.5 ordinary share.
Financials
- Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–One ADR is worth one ordinary share.
- Commonwealth Bank of Australia Ltd (ASX: CBA, OTC: CBAUF, ADR: CMWAY)–One ADR is worth one ordinary share.
- National Australia Bank Ltd (ASX: NAB, OTC: NAUBF, ADR: NABZY)–One ADR is worth one ordinary share.
- QBE Insurance Ltd (ASX: QBE, OTC: QBEIF, ADR: QBIEY)–One ADR is worth one ordinary share.
- Westfield Group Ltd (ASX: WDC, OTC: WEFIF, ADR: WFGPY)–One ADR is worth two ordinary shares.
- Westpac Banking Corp Ltd (ASX: WBC, NYSE: WBK)–One ADR is worth five ordinary shares.
Health Care
- Ansell Ltd (ASX: ANN, OTC: ANSLF, ADR: ANSLY)–One ADR is worth four ordinary shares.
- Cochlear Ltd (ASX: COH, OTC: CHEOF, ADR: CHEOY)–One ADR is worth 0.5 ordinary share.
- CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–One ADR is worth 0.5 ordinary share.
- Sonic Healthcare Ltd (ASX: SHL, OTC: SKHCF, ADR: SKHCY)–One ADR is worth one ordinary share.
Industrials
- Amcor Ltd (ASX: AMC, OTC: AMCRF, ADR: AMCRY)–One ADR is worth four ordinary shares.
- Boral Ltd (ASX: BLD, OTC: BOALF, ADR: BOALY)–One ADR is worth four ordinary shares.
- GWA Group Ltd (ASX: GWA, OTC: GWAXF, ADR: GWAXY)–One ADR is worth four ordinary shares.
- Toll Holdings Ltd (ASX: TOL, OTC: THKUF, ADR: THKUY)–One ADR is worth two ordinary shares.
Oil & Gas
- Beach Energy Ltd (ASX: BPT, OTC: BEPTF, ADR: BCHEY)–One ADR is worth 20 ordinary shares.
- Boart Longyear Ltd (ASX: BLY, OTC: BOARF, ADR: BLGPY)–One ADR is worth two ordinary shares.
- Caltex Australia Ltd (ASX: CTX, OTC: CTXAF, ADR: CTXAY)–One ADR is worth two ordinary shares.
- Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–One ADR is worth 10 ordinary shares.
- Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY)–One ADR is worth one ordinary share.
- Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY)–One ADR is worth one ordinary share.
- WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–One ADR represents one ordinary share.
Technology
- Redflex Holdings Ltd (ASX: RDF, OTC: RFLXF, ADR: RFLXY)–One ADR is worth eight ordinary shares.
Telecommunications
- Singapore Telecommunications Ltd (Singapore: ST, ASX: SGT, OTC: SNGNF, ADR: SGAPY)–One ADR is worth 10 ordinary shares.
- Telecom Corp of New Zealand Ltd (ASX: TEL, NYSE: NZT)–One ADR is worth five ordinary shares.
- Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–One ADR is worth five ordinary shares.
Utilities
- AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–One ADR is worth one ordinary share.
- Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–One ADR is worth one ordinary share.
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