As with every reporting season, there were quite a few headscratchers on both the analyst and management side for investors to deal with.
Bingo Industries (BIN): Fund manager darling Bingo Industries shocked the market by announcing a substantial downgrade to profit guidance of $108-112m, or 20% growth from its rubbish collection business. The share price was punished as a result, but after being pitched the IPO some time ago, we couldn’t quite understand how this type of business could manage to consistently deliver 20% profit growth every year. Management indicated that softening residential construction, following house price falls, and a slowdown in developments had hit profits heavily, after suggesting they were immune just a few months ago.
Bank of Queensland (BOQ): As predicted by most in the industry, it has been the smaller banks more impacted by the Royal Commission and APRA prudential measures, as BOQ reported a substantial higher cost of capital and profit falling to $165m from $182m in 2018. Their net interest marhin fell to 1.93% from 1.97%, one of the lowest in Australia, and CET 1 capital is just 9.1% in what must be a concern for the regulator.
IOOF Ltd (IFL): We cant’s quite work out what’s happening at IOOF, after seeing several staff members facing criminal charges, the company that has acquired one financial advisory business after another (including Shadforths) announced remediation provisions of just $5-10m. This pales in comparison to the banks and AMP. They highlighted that the cost to review all their advice will be around $30m but that only 10% of revenue produced by their adviser network comes from grandfathered commissions. We struggle to believe this is accurate and suggest some further negative news is coming in the future. At the same time, the company reporting NPAT of $100.1m, up 5.8% on the first half, and confirmed it would proceed with the purchase of ANZ’s Pension and Investments business.
Afterpay Touch Ltd (APT): APT delivered another solid headline result, with underlying sales on their platform increasing 147% to $2.3bn, yet the company failed to deliver a profit. The company appears to be the buy now pay later provider of choice for retailers, however, the quality of its customers may leave something to be desired. Some 17.6% of income is presently being sourced from late fees and the company continues to avoid the use of credit ratings checks. The strength of the business model appears to be driven by offering credit to those who are unable to control their spending, hence the huge levels of growth and increasingly lower quality of their retail partners. Yet following recent political questioning the company has now indicated it will seek to improve its lending standards; is it giving up growth?