News Corporation (NWS) is a diversified media conglomerate with interests all over the world and in most facets of media.

NWS is broken up into six main segments:

>>Cable Network Programming, which includes names like the FOX News Channel, FOX Business Network, FX, STAR and many other popular pay-TV channels.
>>Filmed Entertainment, which includes Fox Filmed Entertainment, Twentieth Century Fox Television and Fox Television Studios.
>>Television, which includes the FOX Broadcasting Company, the 27 stations in the Fox Television Stations group, and various television operations throughout the world.
>>Publishing, this includes over 150 newspaper brands and book publisher HarperCollins.
>>Director Broadcast Satellite Television, which includes several pay TV providers, such as Australia’s FOXTEL.
>>Other, is a broad segment that pretty much covers any other assets don’t fit into any of the above categories, such as a JV with NBC and Disney to create an online video site.

By the end of June, News Corp. plans to split its giant entertainment businesses, which include its 20th Century Fox film studio and Fox television assets, from its publishing division to create two separately listed companies.

2Q24 Results

NWS’ second quarter results were solid. The company’s revenue was $9.43 billion, up 5% on the same period in 2012.

The group’s underlying operating income was $1.66 billion, a 5% increase on the second quarter of the prior year.

Double-digit revenue growth in the Cable and Television businesses, along with improvements in the Publishing segment, drove group revenue and earnings growth.

Fox Sports

NWS announced its plans to launch a new USA sports network, Fox Sports 1, on August 17. The new network will be available in around 90 million homes, according to the company.

The new channels are being launched through a rebranding of Fox’s existing Speed network, a niche cable channel dedicated to motor sports.

Offerings on the channel include; Major League Baseball, Primetime Basketball, Primetime Football, NASCAR events; and soccer games including UEFA Champions League and Europa League, as well as the FIFA Women’s World Cup in 2015/2019 and the FIFA Men’s World Cup in 2018/2022.

Speed currently charges 22 cents per subscriber. We would expect this fee to be significantly higher given the wide variety of coverage, but we don’t see this being nearly as high as ESPN’s charge of $5.

Outlook

NWS’ 2Q13 results were solid and we expect more of the same in the upcoming 3Q results.

We expect the publishing division to perform strongly with independent data released showing NWS’s flagship product, The Wall Street Journal, maintaining its position as the USA’s largest newspaper by average weekday circulation.

The paper had an average weekday circulation of 2.4 million, including print and digital subscribers, as of March 31, up 12% from a year earlier.

We believe this, coupled with the optimism surrounding the new Fox Sports 1, will see continued share price appreciation for NWS in the near-term.

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Super Cheap Auto (SUL) is Australasia’s leading retailer of automotive and boating, camping and fishing products.

The company boasts a number of brands, including Super Cheap Auto, BCF Boating/Camping/Fishing, GoldCross Cycles, Ray’s Outdoors and Rebel Sport.

1H13 Results

The group’s recent 1H13 results were a solid improvement on the 1H12 results.

Revenue rose 37% to $1.04 billion, helped by strong Like-for-like (LFL) sales. LFL sales for SUL’s Supercheap Auto division were up 5.2% while its Leisure and Sports divisions sales rose by 2.8% and 8.3% respectively.

The group’s underlying earnings EBIT and NPAT increased 35% and 30% respectively compared to the prior corresponding half. On the back of the strong result, the group was able to increase its interim dividend by 31% to 17 cents per share, fully franked.

Operating metrics

SUL has a history of delivering healthy returns, with its return on equity (ROE) averaging 19.2% since 2008. The group has also grown its half-year revenue by an average rate of 18% over the last five halves.

Moreover, while many retailers have been suffering margin contraction, SUL’s EBIDA margin has risen over 140 basis points. These are extremely impressive results given the tough retail-operating environment over the last few years.

Looking ahead

Going forward, we expect SUL to deliver more robust revenue and earnings growth. The company has shown solid same stores sales growth, with an ability to control costs through supply chain initiatives.

We believe SUL’s good supply chain management will be essential, especially given the company long-term aim to open another 40 Super Cheap Auto stores, 44 more stores in Leisure and 59 more stores in Sports.

Overall, we see continued growth for SUL’s business, which should translate to further gains for SUL’s share price.

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Sims Metal Management (SGM) collects, sorts and processes scrap metal materials that are recycled for resale.

The company’s divisions include ferrous recycling, non-ferrous recycling, secondary processing of non-ferrous metals and plastics, international trading of metal commodities and the merchandising of semi-fabricated steel products.

SGM has operations in Australia, New Zealand, the United Kingdom, North America, Asia and Europe and is the world’s largest listed metal recycler with approximately 270 facilities and 6,600 employees globally.

The company is currently in a global search for a new CEO after current CEO Daniel Dienst announced he would retire when his contract concludes on June 30 2013.

1H13 Results

The group’s 1H13 results were disappointing to say the least. Revenue came in at $3.4 billion, a 25% decline on the prior corresponding half, due to a reduction of intake shipments in North America.

SGM reported a 1H13 net loss of $295.5 million, 53.3% better than the prior corresponding period’s $633.2 million loss. The result was attributed to goodwill impairments and inventory writedowns totalling $291.3 million.

On an underlying basis, the group did record a $10 million profit, although the rest was down from $42 million a year earlier. Given the poor result, management decided not to declare a dividend for the first half – the first time the company has not paid an interim dividend since listing.

US and UK Businesses

On 21 January 2013, SGM announced that it will form a special committee to investigate the inventory valuation issues in the company’s UK business.

The result of the committee’s investigation was a $78 million write-down of inventory, of which $16 million was allocated to 1H13 and the remaining balance resulted to a restatement of prior period results.

The write-down represents a massive 29% of the value of inventories in its UK business. That trouble does not stop in the UK.

SGM’s US division, which contributes around 60% f the group’s overall sales, also suffered impairment charges in the first half. The company recorded a goodwill impairment charge of $291 million in the 1H13.

Excluding the write-downs, the US business barely made a profit, reporting an underling EBIT of $2.1 million–a 30% drop from the prior corresponding period.

Looking ahead

The outlook does not look pretty for SGM, at least in the short-term. The $78 million writedown on its UK inventory is extremely alarming because it shows the company’s lack of adequate financial controls in relation to its inventory reporting.

It also brings into question the company’s financial controls in other regions and raises the possibility of further write-downs. Poor management has led to the decision not to distribute a dividend for the first time since it listed, which does not bode well for shareholder confidence.

Moreover, the group downgraded its guidance three times in 2012. Without a significant pickup in US economic activity, we cannot see this year being any different. As such, we feel there is more downside to SGM’s share price in the near-term.

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Westfield Group (WDC) is the world’s largest listed retail property group. The group has a global portfolio, comprising 105 shopping centres across five countries.

It also manages all aspects of shopping centre development, from design and construction through to management and marketing.

FY12 results

Today WDC reported an 18.3% rise in FY12 net profit to $1.7 billion. Funds from operations – which strip out asset revaluations – climbed 6% to $1.5 billion.

Net property income rose 7%, with the UK contributing a large part of the growth as the London Olympics led to an increase in shopping centre traffic.

There was positive 2H momentum in the US, with net operating income growth exceeding previous guidance as specialty sales rose due to a record number of shops opened.

Another highlight was the high occupancy rates. Global occupancy was 97.8%, up 30 basis points on-year with most of the growth coming from the US portfolio.

Buyback extended

WDC declared a final distribution of 24.5 cents, bringing the full year distribution to 49.5 cents. This was a 2.3% increase on FY11’s distribution. The group forecast an FY13 distribution of 51 cents, representing a yield of 4.5% at current prices.

Although this is not as high as some other high yielding stocks in the market, WDC did extend its share buyback for another 12 months, a move likely to provide a good degree of support for the share price.

Outlook

WDC commenced $1.4 billion in new projects during 2012, and forecast another $1.25 – $1.5 billion in new projects during 2013. The overall development pipeline now stands at $12 billion, providing plenty of scope for WDC to continue delivering steady profit growth.

With the US economy continuing to heal from the GFC, we expect stronger retail activity in the group’s largest market. In our view that will help drive the share price higher in the near-to-medium term.

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Mirvac Group (MGR) is an internally managed, diversified property group.

Since the company sold its hotel management business in December 2011, the company comprises of two core divisions, Investments (MPT/MRES), which is a trust structure and includes office and retail portfolios. The division also includes its Investment Management arm. Development, which develops a variety of property types including, residential, apartments, master planned communities and commercial.

MGR has been undertaking a restructure of its business with a focus on de-risking its earnings stream.

1H12 Results

Last week MGR reported its results for the six months to December 2012, which we think showed some promise of things to come. Statutory profit was $55.2 million for 1H13, impacted by $273 million of inventory impairments.

Revenue was $619.4 million, a 7.1% decline on the same period a year earlier. On an operating profit basis – after tax but before specific non-cash items and significant items – the company made $194.2 million, a 3.6% decline on the previous corresponding period.

Although a decline in profit, it is important to note that the company did increase its operating margin by 120 basis points. The increase in margin was on the back of a higher price received for it development projects.

Tangible Book and Yield

On the back of revaluations in the half, MGR’s NTA increased to $1.64 per share. At the group’s current price it is actually trading at a 1.2% discount to this level as opposed to the property sector which is currently trading at a 16% premium to NTA.

At the release of its first half results the group declared a healthy distribution of 4.2 cents per stapled security and confirmed its full year distribution of between 8.5-8.7 cents per security (cpss).

This equates to a yield of 5.3%, which is slightly higher than the property sector’s average 5.2% and higher than its comparable peers Lend Lease and Goodman Group which are both expected to be around 4.3%.

Looking ahead

Despite a slight decrease in MGR’s 1H earnings the company is looking in much better shape, especially on a balance sheet level. The group’s gearing dropped from 27.4% in 1H12 to 23.8% in the 1H13 and impressively dropped its average borrowing cost from 7.6% to 6.4%.

We believe this will see ratings agencies upgrade the group’s BBB credit rating, with the flow on effect being a further reduction in borrowing costs. In the 1H13 results MGR reaffirmed is guidance of an operating EPS of 10.7-10.8cpss   and DPS of between 8.5-8.7 cpss, which would be a solid result.

We think that tight costs controls as shown by increased operating margins, a solid distribution yield and the chance of the ratings upgrade will see the current divergence in price to NTA between MGR and the rest of the property sector decline over the next few months.

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The Reject Shop (TRS) is a discount variety retail company, targeting Australian consumers through low price points, bargain-purchasing and convenient shopping locations. As of 30 June 2012, TRS had 239 stores in Australia, with plans to open another 40 in FY13.

At these stores the company offers a wide variety of general consumer merchandise, with a focus on everyday needs, such as toiletries, cosmetics, homewares, personal care products, hardware, basic furniture, household cleaning products, kitchenware, confectionery and snack food.

The company has two key advantages that many of its mid-to-upper market rivals don’t – a strong AUD benefits earnings due to lower import costs, whilst the substitute nature of its products can appeal to cost-conscious consumers.

Consumer environment

The environment in which TRS and all retailers have been operating has been challenging to say the least, but there are signs that some of these challengers area abating.

The latest reading of the Westpac Consumer Sentiment survey showed the index rising 0.6%, to 100.6 – its third consecutive month above the 100 level.

A reading above 100 indicates that more consumers are optimistic about the economy than pessimistic. Unfortunately the increase in consumer confidence has not translated into an increase in retail sales, which declined 0.2% in the month of December.

Oddly enough the release of the poor retail sales saw the sector move higher, as the market took the view the numbers add to the likelihood of further cash rate cuts.

FY12 results

TRS’s FY12 results were a big improvement on what was a disappointing FY11. The company grew its net profit by 35.6% on-year, to $21.9 million.

The addition of 18 new stores over the year helped sales climb 9.9%, to $555.3 million. An increase in stores was not the only reason for the jump in sales; comparable store sales grew 0.5% over the year, with a 3.2% jump in the second half.

We believe that the 2H12 momentum will continue into TRS’s 1H13 results, which are scheduled to be released on 20 February 2013.

Outlook

TRS’s FY12 results were impressive on several fronts. Besides from the strong store sales growth the group was able to reduce its debt by $16.9 million in FY12, while increasing free cash flow from $1 million in FY11 to $25.2 million in FY12.

Another notable item in TRS’s results was that gross margins rose from 38.9% in FY11, to 44.1% in FY12, likely a combination of a strong Aussie dollar and a reduction in shipping costs.

While retail sales numbers are an important indicator for the retail space, the substitute nature of TRS’s products can appeal to cost-conscious consumers, thus giving the company the ability to grow its sales in a weak environment.

Overall we believe that the aforementioned healthy balance sheet, strong comparable sales growth and expansion of gross margin will continue to drive TRSs earnings and in turn push its share price higher in the near-term.

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Woolworths Limited (WOW) operates supermarkets, specialty and discount department stores, a liquor business and electronics stores throughout Australia.

The company manufactures processed foods, exports and wholesales food and offers petrol retailing. WOW’s hotel operations include pubs, food, accommodation, and gaming.

1Q13 Sales

WOW’s 1Q13 sales continued to show an improving sales trend. Sales from continuing operations were $14.8 billion for the quarter, up 4.7% on the prior corresponding period.

The supermarket division (including liquor), which accounts for ~88% of sales, reported a 3.4% rise in sales to $12.99 billion.

Areas growth

While a majority of WOW’s 1Q13 sales were good without being great, there were a few standout divisions. Big W reported like-for-like (LFL) sales growth of 3.4%, showing the success of the group’s recent marketing campaigns.

The group’s newly entered Masters Home Improvement segment showed spectacular growth, with 62.2% increase in sales. Most of this was driven from seven new store openings in one quarter and greater brand recognition.

The company plans to open 150 stores over the next five years, with at least 30 stores to be opened by the end of FY13. We believe that exposure to this sector can only be beneficial to WOW’s earnings in the long run.

Looking forward

A real solid sales trend has begun to emerge for WOW and 1Q13 sales may continue this positive trend. Another fact we like about the group is that such a large proportion of its sales come from the more reliable supermarket division, as this provides more consistent earnings.

WOW’s ability to generate cash will become increasingly important to fund the Masters Home Improvement expansion and we believe this will be beneficial to WOW going forward.

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Whitehaven Coal Limited (WHC) mines and sells metallurgical and thermal coal to the global steel power generation and metallurgical industries.

The company is a coal producer in the Gunnedah Basin and has an interest in tenements covering the Gunnedah, Werris and Ashford Coal Basins of New South Wales.

Earlier this year WHC completed a merger with Aston Resources and Boardwalk Resources, which made it Australia’s largest independent coal company. The group has been in the headlines as of late, after largest shareholder Nathan Tinkler failed to have company directors ousted.

FY12 results

WHC’s FY12 results were not good, but not exactly a surprise given the well publicised weakness in the coal industry. Revenue over the year slipped 1% to $618.1 million, whilst NPAT before significant items dropped 21.1% to 57.8 million.

The most worrying part of the results was the significant increase in average cash cost of sales, which rose 15.6% to $69.93 per ton. This saw EBITDA margin contract from 41% to 33%, which is obviously not a good sign as the company attempts to ramp up production.

Coal prices

Coal prices have endured a dramatic fall since the start of the year. The price has fallen from a little under $120 a ton to now be trading around the $85 mark. This represented a 36.3% decline.

If the trend continues WHC could face continued pressure and the possibility of some of their planned ramp-ups becoming economically unviable.

The International Energy Agency (IEA) this week said in its World Energy Outlook that although coal would remain the world’s leading fuel for power generation in the next two decades, its share would drop.

The IEA also outlined another scenario which could see coal’s share of global energy crash to 16%, from its current 30%. This scenario could occur in the next 10 years if the demands by current climate change scientists are met that there be no more than 450 parts per million of carbon dioxide in the atmosphere.

Outlook

WHC FY12 results were disappointing, but besides form the fall in profit it was the increase in the average cash cost of sales that was the most alarming factor.

The report by IEA this week did not provide a good outlook for the coal market especially if the more unlikely climate change scenario comes into play. Overall we see further declines in the coal price and we see this translating into further share price deterioration for WHC.

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CBA Reported Unadited 3rd Qtr Cash Profit of $1.75b

Commonwealth Bank (CBA) is the nation’s largest bank by market capitalisation, holds the greatest amount of deposits, the most home loans, and also controls a fair chunk of the wealth management market through Colonial First State.

The financial stock also operates Australia’s largest discount online brokerage operation, Commsec, as well as a multitude of international operations.

Importantly, the bank has used its size to grow even bigger over the years. While many financial institutions collapsed over the global economic downturn – or neared collapse – CBA used its massive deposit base to maintain funding and buy depressed assets.

The banking giant also has diverse exposure geographically with stakes in several banks in the fast growing China.

3^rd Quarter Trading Update

CBA last month reported a third quarter unaudited cash profit of $1.75 billion, a 2.9% increase on the prior corresponding quarter.

The results come after the company had a record first half cash profit of $3,576 million, which was a 7% jump on the prior year.

The group warned not only in its first half update, but also in its March quarter update, that higher funding costs have reduced its margins.

However the updates from the bank covered periods before the RBA cut the official cash rate twice for a total of 75 basis points.

CBA only passed 61 points of these cut, we believe that these should help alleviate some of banks margin pressures.

Aussie Banks

Last week Moody’s downgraded 15 major global banks, with Bank of America, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley also receiving at least a one notch cut its long-term debt rating.  Credit Suisse was downgraded three full notches.

Spanish and Brazilian banks recently had their ratings cut with Spain obviously suffering major downgrades after the government had to borrow money to keep the banks adequately capitalised.

However the Australian banks continue to be rated amongst the highest in the world, all four remain within their AA credit rating band.

Moody’s said that our banks “don’t engage in capital markets business and in particular higher-risk activities, like proprietary trading. They are focused on traditional lending for residential mortgages and the corporate sector.”

With the Australian banks in such good condition, and some of the last few AA rated banks globally, they are in a better position than most to borrow funds from wholesale markets.

Looking ahead

CBA said in its quarterly update that it is in a strong position, which continues to enable them to take a long term view of business. This is important as the bank continues to expand its presence in the growing Asian region.

We believe that the bank’s worries of higher funding costs would have subsided or at least eased with the two consecutive rate cuts by RBA.

The bank also remains one of the most attractive of the big four banks, with an average return on equity (ROE) over the last three years of 17.4%, a full 2% higher than any of its rivals.

With three quarters of its fiscal year completed, CBA is on track to be the first Australian bank to make a profit on over $7 billion and we look forward to seeing CBA’s continued success translate into continued gains for its share price.

CBA $1.75 billion Cash Profit In Third Quarter

Commonwealth Bank of Australia provides banking, life insurance and related services for individuals, small businesses and medium sized commercial enterprises.

The Bank provides corporate and general banking, international financing, institutional banking and stock broking and funds management such as superannuation product.

Financial Stock CBA reported a $1.75 billion cash profit in the third quarter, a 3% rise from the prior corresponding period.

The bank did note that subdued credit demand and high funding costs continued to eat into its profit margins.

CEO Ian Narev said in a statement “consistent with the uncertain outlook that we indicated in the Group’s half-year results in February, we have retained our conservative business settings, including tight expense control, a conservative funding profile and strong provisioning levels”

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