Australia’s listed companies are just past the halfway mark in the half-yearly reporting season and despite the mood of caution coming from chief executives, so far the news is actually pretty good.
AMP Capital Investors chief economist Shane Oliver says that 40 of the 69 major companies have reportedly beat analysts’ profit expectations and 65% of companies have posted higher earnings than in the previous corresponding period (compared to an expectation of just 50%).
“Apart from the generally positive tone, key themes have been strong results for banks (with NAB being an exception), downside surprises and outlook downgrades among some defensive stocks (such as Telstra), cyclical stocks starting to benefit from economic recovery although at this stage it’s still a bit mixed, depending on the sector,” Oliver wrote in his weekly economic update.
“Overall the results so far provide confidence that profits will grow 20% or so over the year ahead.”
But despite the quietly optimistic mood of the market, you do need to dig through the results to find the top performers, particularly at the small and mid cap end of the market.
With this in mind, we’ve hunted out five solid performers and found the strategy secrets that are keeping them ahead of the game.
Concentrate on cashflow
Accounting and financial services firm WHK posted an impressive turnaround in its half-yearly results, with a $16.2 million profit in the six months to December 31, 2009, compared with a $2.7 million loss in the previous corresponding period – despite a small dip in revenue related to the GFC.
The key to the result was a tight focus on working capital and debt reduction, which helped lift cashflow from operations from $5.2 million to $22.7 million. This helped the company increase its interim by 33%, an impressive effort in a difficult period for the financial services sector.
Don’t get caught with too much stock
Women’s clothing retailer Noni B has had a tough few years, with its shares dropping from above $3 to around $1.40. But there are signs things are turning around, with net profit in the first six months jumping 43.4% to $3.6 million – not bad considering the level of discounting we’ve seen in the retail market. The company’s management flagged tight inventory management as the key to its turnaround, as this helped the company avoid the worst of the industry-wide discounting and helped EBITDA margins improve to 11.6% from 9.4%. Not getting caught with too much stock will continue to be key in this lumpy retail environment.
Invest for future growth before it happens
On the flipside of the inventory control equation is discount chain The Reject Shop, which posted a 21.7% rise in net profit for the first half to $18.9 million. But the result could have been better were it not for a stuff up in stock ordering – in the first quarter of the year, the company admits that it misread the market and got caught short in the “basics” products that consumers flock to the chain to buy. The company spent most of the second half getting its “in-stock” position back in shape, and is bolstering its product planning and buying teams to make sure the problem does not reoccur.
Despite this hiccup, it’s worth highlighting The Reject Shop’s ability to look forward with heavy investments in distribution infrastructure and particularly IT infrastructure, such that by June 2010 the company will be able to support a store network twice its current size. These investments should pay dividends – the chain will be able to spread its fixed costs over a far biggest business, reduce supply chain expenses and improve product ordering and stock management. To make these investments during a downturn is also impressive.
Never stop innovating – even if your core product rarely changes
How much innovation is possible in the takeaway pizza game? Plenty, according to Domino’s Pizza Enterprises, which posted a 39.2% increase in net profit to $8.7 million for the first half. Chief executive Don Meij said the result was largely due to innovation in products and distribution. On the product side, this includes new healthy menu items and a special lunch menu, which on the distribution side the company has continued to build its online ordering systems and developed a very successful iPhone app which generated $2 million of sales in its first 12 weeks. Which all goes to show that while you might not be able to improve on the ham and pineapple pizza, you can always find new ways to sell it.
Don’t ignore export markets
Australia’s export education sector might be struggling at present, but that didn’t stop listed education company Navitas posting a 45% jump in net profit to $27.5 million in the first half on the back of improved student enrolment numbers. The key to this company’s growth is its continued focus on offshore markets. It recently opened two campuses in Britain and has just launched a strong push into the US market, with four agreements with US universities already announced since January. This might not feel like the time to be dipping your toe in international waters, but companies such as Navitas show that this could be the perfect time to establish a foothold overseas that could set your business up for the next decade.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
