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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Westfield Group (WDC) is the world’s largest listed retail property group was listed as a share to buy in our traders report on Tuesday April 16th. 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

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.

WDC also extended its share buyback for another 12 months, a move likely to provide a good degree of support for its share price.

Shedding non-core assets

In the latest example of the group optimizing its asset structure, WDC sold its 49.9% stake in six Westfield shopping centres in Florida, USA, to O’Connor Capital Partners.

The sale is expected to bring in net proceeds of US$700 million and will result in a joint venture between the two firms, with Westfield retaining its role as property, leasing, and development manager.

By shedding non-core assets, WDC is freeing up capital to help fund its $12 billion development pipeline and engage in capital return initiatives such as the expansion of its buyback program.

Outlook

Last week WDC commenced a plan to redevelop Westfield Garden City at Mt Gravatt, Queensland.

The $400 million project will be jointly funded by WDC and Westfield Retail Trust (WDC). The redevelopment will include a full line Myer department store, a new Target store and over 100 new specialty retailers.

The Mt Gravatt project is expected to yield 6.75% – 7.25%, in line with the yield generated by WDC’s other development projects in the US and Australia.

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.

In our view, the group’s selling of non-core assets and investment in high yielding projects will increase the return from its assets and ultimately translate into further share price appreciation.

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Newcrest Mining (NCM) is Australia’s largest gold producer and one of the world’s top five gold mining companies by production, reserves, and market cap. NCM’s main operations are in Australia, Indonesia, Papua New Guinea, Fiji and West Africa, and has a global workforce exceeding 19,000.

The company has a portfolio of predominantly low-cost, long-life operating mines, although it also has a history of operations troubles at its key projects (both operational and developmental).

1H13 Results

NCM’s 1H13 results were disappointing on several fronts. Gold production for the half was 953,000 ounces, down 18% on prior corresponding half.

Cash costs increased 8% on same period in FY12. The poor production results led to revenue falling 28% and underlying profit plummeted 48%.

Guidance downgrade

Late last month, the group downgraded its full year production – its fifth downgrade in the last two years. Gold production was lowered from 2.3 to 2.5 million ounces of gold to 2.0 to 2.15 million ounces.

The company cited operational issues at Lihir and Gosowong as the reason for the downgrade. While the downgrade was not a massive shock given the poor 1H results, it is yet more evidence of management inability to forecasts its own production.

Gold Prices

While the groups poor results have contributed to recent share price weakness, it correlation to the gold price has also contributed.

The above shows the gold price (white line) and NCM share price (yellow line) over the last nine month.

As is shown, the fall in the gold price has dragged on NCM’s share price. With fears of monetary easing-induced hyperinflation are abating, other asset classes such as equities are offering relatively stronger returns.

Outlook

NCM’s 1H13 results showed the effects of both poor production and a falling gold price.

Disappointingly, the group last month downgraded its full year guidance. This downgrade was already from what we would consider low-end guidance and while not a complete surprise it does not leave us with much faith its management’s ability to forecast its own production.

With the flight to stronger returning asset classes likely to continue in the near-term, we see continued weakness for the gold price and as a by-product NCM’s share price.

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ANZ Banking Group (ANZ) is the nation’s third-largest bank by market capitalisation, and is among the top 50 banks in the world.

The group provides a variety of banking and financial products and services to around 8 million customers, and employs 48,000 people worldwide.

ANZ operates in Australia, New Zealand, Asia, the Pacific, the Middle East, Europe and America. In recent years the group’s strategy has shifted to become a super-regional bank. To this end, the bank is aiming for between 25-30% of its earnings to come from its Asia, Pacific, Europe and America Division (APEA) by 2017, with the major focus being the high growth Asian region.

China manufacturing in expansion mode

For much of the early part of 2012 the discussion surrounding China was whether it was heading for a hard landing or a soft landing. The fears of a hard landing abated by the end of 2012’s second half, helped by China’s central bank adopting an easing bias towards monetary policy.

Measures including lower interest rates and targeted fiscal stimulus appear to be flowing through to China’s manufacturing sector, which is beginning to expand after an extended period of contraction. Last month, the HSBC Flash PMI showed factory activity accelerated to a two year high in January.

A pickup in manufacturing activity is important for ANZ as it implies Chinese companies are taking advantage of easier credit conditions and borrowing money in order to expand.

What to look for in trading update

ANZ’s FY12 results revealed a 2.6% increase in FY12 cash profit to $5.75 billion.  The APEA strategy also continues to be a key driver for ANZ’s overall business.

In FY12 this region’s income comprised 21% of overall profit, putting the group on track to achieve its aim for APEA to contribute 25% – 30% of overall profit by 2017.

Today CBA reported a 6% on-year rise in 1H13 cash profit to $3.78 billion.  Impressively, the result came on the back of a 6% increase in revenue.

The group’s net interest margin rose 4 basis points from the previous half, in a sign wholesale funding pressures are easing for the four majors. CBA’s first half results are a healthy indicator for the industry, and we expect ANZ to announce a similarly positive result when it provides a trading update for the first quarter later this week.

Outlook

ANZ’s FY12 results provide it with a good base to tackle FY13, and we expect some good news in its first quarter trading update. We will look for an improvement in interest margin and asset quality, as well as a cash profit driven by good cost control and evidence of top line growth.

The group’s exposure to Asia will continue to be an important earnings driver, and the benefits of this leverage will translate to further share price appreciation in our view.

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ANZ Banking Group (ANZ) is the nation’s third-largest bank by market capitalisation, and is among the top 50 banks in the world.

The group provides a variety of banking and financial products and services to around 8 million customers, and employs 48,000 people worldwide. ANZ operates in Australia, New Zealand, Asia, the Pacific, the Middle East, Europe and America.

In recent years the group’s strategy has shifted to become a super-regional bank. To this end, the bank is aiming for between 25-30% of its earnings to come from its Asia, Pacific, Europe and America Division (APEA) by 2017, with the major focus being the high growth Asian region.

FY12 results

ANZ’s FY12 results were good without being great. The banking major recorded FY12 statutory profit of $5.7 billion, up 6% from the FY11 result.

An increased capital base saw EPS only rise by 2% year on year, to 213.4 cents a share. Dividend growth over the financial year managed to outpace inflation, with a 4% increase to 145 cents a share.

We were most impressed with direction of the group’s super-regional strategy.

 
As the above shows the group managed to grow the income from APEA by 5% over FY12 to 21%. Notably the group also managed to slow down operating expense growth in the region from 11% to 4%.

The group’s APEA strategy continues to be a key driver for ANZ’s overall business results and we think this will continue as the group strives for a contribution of 25% – 30% of overall profit by 2017.

China expanding again!

For much of the early part of 2012 the discussion surrounding China was whether the slowdown in growth would be a hard landing or a soft landing. The fears of a hard landing abated by the end of the second half, helped by China’s central bank adopting an easing bias towards monetary policy.

The central bank actually began its stimulus measures in December 2011 when it implemented the first of a series of reserve requirement ratio (RRR) cuts. After cutting the RRR by 1.5% the PBOC then cut the country’s official interest rate by a little over 0.5% in the months of June and July.

These stimulus measures have began to show signs of flowing through to China’s manufacturing sector, which was the cornerstones of the country’s explosive growth of the last 10 years.

The month of November saw the HSBC Flash Manufacturing Index return a reading of over 50 for the first time in 12-months, indicating the sector had returned to expansion. Every month since that return to expansion was followed by an increase in the index, with yesterday’s reading of 51.9 marking a 24-month high.

Outlook

ANZ’s FY12 results provide it with a good base to tackle FY13. The year was not an easy one for the global banks in general, with the eurozone crisis leading to higher funding costs, which increased pressure on bank interest margins.

ANZ’s net interest margin contracted 11 basis points over the year. That being said, it was the group’s exposure to Asia that allowed it to grow earnings.

We believe that ANZ’s leverage to the growing Asian region will continue to benefit the company and this is expected to result in further share price appreciation.

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Telstra Corporation Limited (TLS) is a full service domestic and international telecommunications provider and is without question the dominant telco in Australia.

The company provides telephone exchange lines to homes and businesses, supplying local, long distance and international telephone calls and supplying mobile telecommunications services. TLS also provides data, internet, on-line services and directory services.

TLS has five key business segments:

 
FY12 Results

The groups’ FY12 results revealed low, but stable growth. EBITDA was $10.2 billion, a 2.1% increase on the prior year’s result on a guidance basis. Revenue over the year climbed 1.3%, to $25.4 billion.

TLS’s mobile division, which accounted for over 30% of entire group’s EBITDA, continues to be one of the company’s strongest contributors. The Mobile division reported an EBITDA of $3.12 billion, an 18.4% increase on the prior year’s result.

The group’s margins in this division also grew over the year from 33%, to an impressive 36% in FY12.

Investor day – strategy

The group’s investor day focused on the medium/long-term strategy and positioning of TLS. A few of the key points we gleamed from the presentation in regards to th core/mature business’s fixed lines, mobiles and internet:

 
The group plans to extract growth out of the less mature segments such as the Network Applications and Storage, Mobile Broadband or Foxtel.

Investor day – Decrease in Capex

A real positive announcement to come out of the investor day was the targeting of a lower capex/sales ratio.

TLS set it will target a capex/sales ratio of 14% in the medium-term, down from the 15% it has forecasts for FY13. This is most likely a result of the group’s involvement in the NBN, which is likely to be less capital intensive than its current network.

Looking ahead

TLS’s FY12 results showed the type of consistent growth we have come to expect. The investor update was a realistic approach to the business, with TLS understanding that it needs to protect its mature business rather than strive for unrealistic growth.

TLS is currently trading on a forecast yield (28c for FY13) of over 6.1%, fully franked, or 8.7% on a pre-tax basis. This yield, while not as attractive as before, is still likely to be enticing to investors given the low interest rate environment.

The aim of a lower capex/sales ratio is also good news as the high capital intensive nature of the business has always been a concern to market pundits. Overall we expect a solid result from TLS for the 1H13 and this should translate to further share price growth.

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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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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 bank 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.

1Q13 Trading Update

Despite facing slowing credit growth, CBA was still able to generate solid earnings growth in 1Q13. The group reported a 1Q13 statutory profit of $1.8 billion.

Unaudited cash profit, a measure more reflective of underlying performance, was $1.85 billion, a 5.7% increase on the prior corresponding quarter.

A breakdown of the results revealed net interest margins (NIM) were broadly stable in the quarter, relative to 2H12 NIM of 2.06%. The company noted that asset repricing impacts were largely offset by continued deposit pricing pressures.

The company’s’ trading income improved to a level consistent with the company’s long-term average run-rate, the result was also helped by a positive Credit Valuation Adjustment. CBA’s asset growth was mainly a function if of increased retail deposits, which now make up of 63% of the group’s total funding.

The Australian Retail division had a particularly good quarter, with improved lending margins, improved credit quality and good growth in customer numbers at its Bankwest subsidiary.

The Wealth Management and Insurance division produced solid volume growth, with Funds under Administration and Funds under Management growing by 6% and 4% respectively. Insurance premiums grew by 3%, with cross selling to the banks retail customer base showed signs of improved penetration.

With regards to CBA’s other division, the bank said most were trending at similar run rates to the 2H12.

Looking ahead

CBA’s quarterly update was solid, with a clearly improved tone from previous periods. Although the company did note slower revenue growth, it did increase profits by over 5%, this is an indication that the group has been able cut its expenses to cover for any reduction in revenue.

On a return on equity (ROE) basis, CBA does look attractive to its major rivals, with an average (ROE over the last three years of 17.6%, which is over 1% higher than any of its rivals.

Overall we expect a continuation of growth for CBA’s earnings in the current quarter, and this should hopefully translate into continued share price appreciation.

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CSL Limited (CSL) develops, manufactures and markets human pharmaceutical and diagnostic products derived from human plasma.

The company’s operations are concentrated in Australia, Germany, Switzerland and the US, although its reach extends to almost 27 countries with over 10,000 employees. CSL’s main operational businesses include CSL Behring (including CSL Plasma) and CSL Biotherapies.

The company’s products include pediatric and adult vaccines, infection and pain medicine, skin disorder remedies, antivenoms, Albumin, anticoagulants and immunoglobulin’s (IG).

FY12 results:

As the above shows CSL has a solid history of growing its earnings. Total sales for FY12 were $4.4 billion, which was on a constant currency basis is a 12% jump on FY11.

On a constant currency basis CSL’s FY12 NPAT was $983 million, a 14% increase on the previous year’s result. The balance sheet is also healthy with FY12 cash flow from operations was up 14% to $1.16 billion and $1.16 billion of cash on hand.

Aussie dollar:

Given the company earns a majority of its earnings in US dollars the falling Aussie dollar is a benefit to CSL. Several of the pillars that have been holding up the Aussie dollar are not looking as stable as they once were.

One of these pillars being Chinese demand for Australian commodities is not as strong as it once was, and this in turn means less demand for our currency. Another fact hurting the Aussie dollar is the RBA moving to an easing bias, as characterised by this week’s interest rate cut.

Buy-Back

Another factor likely to underpin the company’s stock price is the undertaking of share-buybacks. The company is currently in the middle of an on-market share buy-back that it is 77% complete.

What was interesting in the release of CSL’s FY12 results was the fact it flagged the potential for another on-market share buy-back. Given its strong cash flow, we think the company will be able to complete another buy-back without stretching its balance sheet.

Outlook:

CSL appears to be in solid shape as we move further into FY13.

The company is expecting constant currency NPAT growth of 12% in FY13, which we think is achievable given its recent history of meeting or exceeding guidance. We also think that a weaker Aussie dollar and the likelihood of another share-buyback will underpin further share price gains.

Our Recommendations:

On the 5th of October 2012 we issued a recommendation to our clients of the  Traders Report to purchase CSL at $46.10. The stock has since moved to a price of $47.17 as of 11:30am October 11th.

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