This week, Ausdrill credit performance increasingly driven by business in Africa, Ensco 3Q17 earnings, Eric Insurance 1Q18 results, new DirectBond from RSEA Finance and FY17 results for ANZ and Liberty Financial
ANZ – FY17 results
ANZ released its full year 2017 results on 26 October 2017. A subdued bad debt environment contributed to earnings growth, but competition and regulation will constrain revenue growth in the coming year. The result was neutral for credit with capital, asset quality and liquidity all improving.
Earnings
- FY17 cash profit was AUD6.94bn, an increase of 18% compared to FY16
- Earnings growth was achieved through a 9% decline in operating expenses and a 38% decline in bad debt charge. A large contributor to declining operating expenses was headcount reduction (FTE down to 44,900 staff from over 50,000 two years ago), as well as some relief from accounting measures
- Bank levy reduced net interest income by 1% or AUD86m. Net interest margin declined 8bps to 1.99%, reflecting a combined impact of deposit competition, growth in the low yielding liquidity portfolio and lower earnings on capital deployed to businesses.
- The efficiency ratio, which is measured as a ratio of operating expenses to income, declined significantly to 46.6% from 50.8%
Capital
- As at 30 June 2017, ANZ’s CET1 ratio (APRA basics) was 10.6% (FY16 9.6%), above the ‘unquestionably strong’ minimum requirement of 10.5%. Growth in capital was driven by organic capital generation – increased cash profits and net reduction in risk weighted assets
- Leverage ratio, which measures core capita as a proportion of total assets, improved slightly from 5.3% to 5.4% over the year
Funding and liquidity
The full results are available here on the ANZ website.
Ausdrill’s credit profile increasingly driven by business in Africa
Moody’s says that the credit profile of Ausdrill Limited continues to improve on falling leverage and earnings growth as the company increasingly reaps the benefits of its business in Africa. Ausdrill's revenue share from Africa has grown significantly. In fiscal 2017, revenue derived from operations in Africa, mainly West Africa, represented around 52% of total group revenue, compared with only 32% in fiscal 2013. At the same time, Ausdrill’s credit quality is constrained by the potential for earnings volatility due to its increasing exposure to an inherently unpredictable gold price.
Ensco 3Q17 earnings
Note: This report was prepared by James Price, Assistant, Fixed Income from the Melbourne office.
Ensco reported earnings overnight that met and exceeded expectations on all fronts as well as reiterated its relative strength year to date as well as its strong positioning post their acquisition of Atwood Oceanics.
Main points:
- Revenue and earnings beat expectations
- Management reiterated the company’s strength in the disproportionate number of awarded contracts to Ensco in YTD 2017 (see Figure 1)
- 20% of total awarded offshore contracts
- Double the number of contracts of its next competitor
- Revolver was extended out to 2022 – further improving Ensco’s best in class company liquidity
- The recent Atwood acquisition provides USD60m of annual synergies in 2017 – USD80m of annual synergies 2019. In perspective, the company pays USD48m of interest expense per quarter
- Ensco’s already stand out operational efficiency and safety improved further while costs have been cut significantly
- Cold-Stacked RIG Ensco DS4 was contracted in 3Q – it has outperformed customer expectations and maintained 100% operational efficiency. This is an important operation milestone and proves that Ensco’s cold-stacking strategy (which cut costs through the downturn) will not deter customers contracting these rigs.
- The company outlined its ongoing strategy:
- Increasing technological innovation to further improve efficiency
- E&P current capex is not sustainable with likely oil supply gaps in coming years
- High-Spec rigs like the ATW acquired rigs are likely going to be the first rigs to receive an increase in day rates (margin increase) as utilisation increases
Eric Insurance 1Q18 results in line with lower revised forecast
We have provided a report on Eric Insurance Ltd’s (Eric) 1Q18 results.
Eric’s 1Q18 (quarter ending 30 Sep 2017) unaudited results continue to reflect a challenging operating and regulatory environment. Results to date are in line with our forecasts for FY18, which were revised down following the release of the FY17 earnings.
The full report can be viewed here. Note the content requires a FIIG wholesale login.
Liberty Financial FY17 earnings update – strong growth trajectory
We have provided a report on Liberty Financial Pty Ltd’s (Liberty) FY17 earnings.
Liberty reported strong FY17 earnings, which were boosted by solid lending growth experienced in the last two years. We believe the Liberty 5.10% June 2020 senior unsecured bonds offer fair value at the current indicative mid price on a relative value basis.
The full report can be viewed here. Note the content requires a FIIG wholesale login.
New retail DirectBond from RSEA Finance
We have provided a research report on RSEA Finance which has been reviewed and approved for the DirectBonds list.
RSEA is a leading specialist omni-channel retailer and distributor of workwear, personal and work safety products and hirer of road safety equipment. Founded in 1993, it has expanded its operations across Australia and New Zealand with a domestic national footprint covering six of the major states and territories. This footprint allows RSEA to secure and service major clients with national operations. RSEA consists of two distinct businesses: the Safety division (86% of revenues) which provides safety, protective gear and work wear, and the Hire division (14% of revenues) which specialises in equipment for traffic management, construction and special events across Australia.
When compared to high yield peers, we believe the RSEA 7.75% 27 October 2021 notes offer fair value with a current indicative mid price of $102.35, giving a yield to worst (YTW) of 6.00% to the next call date of 27 January 2018. It is important to highlight that the notes have limited potential price upside, given the notes are callable on each quarterly interest payment date which will likely cap the price.
The full research report is available here. Note the content requires a FIIG login.