Finance

Market Murmurs: SWM, SEK, GMG


Another busy ASX trading session on Tuesday with news aplenty, and here’s the latest from Kerry Stokes’ Seven West Media (ASX:SWM), HR firm Seek Ltd (ASX:SEK) and logistics giant Goodman Group (ASX:GMG).
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Kerry Stokes’ media arm Seven West Media (ASX:SWM) will buy back 10% of its shares over the next year after earnings rebounded strongly in the year to June.

The buyback will cost it around $82 million at current stockmarket prices around 52 cents a share if carried out in full.

That could see Stokes’ Seven Group Holdings tighten its grip on Seven West Media by around 3%, taking its holding to around 42% from 38.9%.

Seven West Media will borrow the money to run the buyback – taxpayers will in effect help finance it, as they do for all buybacks.

That will lift debt by a small margin, which is a bit of irony at a time when interest rates are rising because Seven West has spent the past three years hacking and slashing costs, staff and businesses to cut debt from a crippling $700 million at one stage.

“The buyback will be funded out of existing debt facilities,” Seven West said on Tuesday in the ASX announcement.

CEO James Warburton all but confirmed the company was running the buyback because it couldn’t see any possible acquisition targets.

“The Board believes this buyback is a prudent allocation of capital given where our share price is trading, but we will also continue to actively assess growth opportunities, be it acquisitions or investments in organic initiatives where they create shareholder value.”

Obviously a dividend was not mentioned – shareholders who have stuck with Serven through the bad days were ignored. They haven’t seen a dividend since September 2017, when 2 cents a share was paid.

Kerry Stokes doesn’t need a dividend, his key company Seven Group Holdings is rolling in cash with the mining boom in WA and NSW and Queensland (in coal) keeping demand for Caterpillar machines and hire gear from Coates hire. The continuing infrastructure boom in most states (especially in and around Sydney) is also helping.

Seven Group grabbed control of Boral last year and that will become a cash generating business and the 30% owned Beach Energy had a big year in 2021-22 but only paid 2 cents a share in dividends despite earning a net profit of around half a billion dollars.

So Seven West shareholders apart from Stokes and Seven Group, will have to settle for the buyback, which will be run over the next year – probably to support the shares if they happen to weaken as they did earlier this year.

Or as Seven West said in Tuesday’s statement “The on-market share buyback program will be conducted on an opportunistic basis over the coming 12 months.”

Certainly Seven West Media’s 2021-22 strong results provide support for a buyback.

The company reported a statutory net profit after income tax of $211.1 million on group revenue up 21% at $1.54 billion. Underlying net profit after tax (excluding significant items) was $200.8 million, up 60% on the previous year.

Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 35% to $342.2 million and earnings before interest and tax of $309.0 million was also up 35% on 2020-21.

Seven said West Australian Newspapers had its best result for five years as digital revenues rose, more than offset a fall in print.

But the outstanding part of the result was the Seven Digital EBITDA up 129% to $139 million, which is now 40% of group earnings.

Investors, however, were not impressed and the shares fell 3.8% to 50 cents. That buyback might be needed sooner than thought.

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The hot Australian jobs market has helped Seek Ltd (ASX:SEK) lift its dividend by 10% for the year to June.

Despite rising inflation and interest rates, the jobs market remains very buoyant, with vacancies and the official number of people unemployed almost in a one for one ratio – an unheard of situation, according to data from the Australian Bureau of Statistics.

The soaring demand for labour and record job ads saw Seek perform well in 2021-22 with revenue from continuing operations up 47% to $1.116 billion, EBITDA up 53% to $509.1 million and net profit after tax (excluding significant items) climbing 81% to $245.5 million.

Final dividend was set at 21 cents a share, full franked, up just one cent from the 20 cents a share final a year ago. With the higher interim of 23 cents a share (20 cents), full year dividend is 44 cents a share, up 10%.

And despite the encouraging rises in revenue and earnings, the relatively modest rise in dividends and a weak outlook for 2022-23 saw investors sell down the shares by 5% to $23.12. They were down more than 7% earlier in trading.

Seek said it saw record levels of job ads in Australia and NZ, especially in the final months of the June year as jobs markets boomed in both countries. This it said flowed from a tight employment market which drove high levels of activity.

The average ad yield grew 11% over the previous year attributed evenly through higher prices, customer mix, and increased depth adoption.

In Asia, Seek said volumes grew across all markets despite some ongoing Covid-linked lockdowns. The average ad yield fell 1% compared to FY 2021 on the back of advertisers purchasing larger packages resulting in higher volume-based discounts.

Seek CEO Ian Narev was upbeat about the performance in the June year:

“In all our Asia Pacific markets, ongoing economic recovery drove high demand for labour, which in turn led to strong job ad volumes and increased depth adoption. Our markets continue to be highly competitive.

“However, SEEK maintained its market leadership positions, with stable placement metrics throughout Asia Pacific. Increased investment in Asia led to improved candidate metrics.”

But when it came to 2022-23, Seek went all coy – revenue in the range of $1.25 billion to $1.30 billion ($1.16 billion in 2021-22), EBITDA in the range of $560 million to $590 million ($509 million) and net profit after tax in a range from $250 million to $270 million ($245.5 million, so not a big improvement).

CEO Narev explained why Seek had set what look like modest goals for the new financial year.

“Economic and labour market conditions across our key markets remain positive, although some leading indicators look slightly weaker. Our revenue guidance for FY23 assumes a continuation of largely positive conditions.

“We have assumed a low risk of job market volatility from monetary policy, geopolitical change and the pandemic. If this assumption changes, revenue could fall below guidance.

“Our guidance also assumes a continuation of the accelerated investment from FY22, in particular the Platform Unification program. Spend for the project will peak in FY23 as we ensure that our systems are sufficiently flexible, resilient and scalable to drive future growth,“ He added.

When you look at the small rise in the final dividend and the modest guidance for the year to June 30, 2023, it’s a hint that the company is worried about the year ahead, so it’s no wonder investors got a bit nervous and took some profits.

Seek shares are down more than 30% year to date, which is odd because the company has grown earnings, lifted dividend and ridden the hot jobs market without falling off.

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Global logistics and warehouse giant Goodman Group (ASX:GMG) has forecast another year of growth in annual operating earnings as it again bets that industrial property will thrive even if economies slow in the face of rising inflation and interest rates.

Goodman said in its 2021-22 results release in Tuesday that it is looking for an 11% rise in operating earnings this financial year (or earnings per security of 93 cents, up from 81.3 cents a share in the year to June 30).

But shareholders will have to put up with no growth in its distribution which will remain steady at 30 Australian cents a security to help fund its growing development workbook.

That’s perhaps why the shares eased 0.4% to $20.55 at Tuesday’s close.

“Demand is currently exceeding supply in our markets, supporting our development-led growth strategy and producing well-located assets for the group and our partnerships,” CEO Greg Goodman said in the results release.

“Our production rate, depth of customer demand and strong margins are supporting the outlook for development earnings into fiscal 2023.”

Goodman has ridden (as have other property groups such as GPT, Mirvac and Stockland) the continuing strong demand for industrial property for warehouses, distribution and sorting (fulfilment) centres from the likes of Amazon, retailers, wholesalers and online start ups.

Even though the end of lockdowns and the return of shoppers to bricks and mortar outlets and offices, the strong demand for logistics facilities at all levels looks like continuing. Those facilities with a strong green tinge appear to be in high demand.

Goodman’s strong outlook for 2023 followed a 48% rise in 2021-22 earnings to $3.41 billion including revaluations. Operating profit rose 25% to $1.528 billion.

Annual operating earnings per security of 81.3 cents beat guidance provided in May for 23% growth which in turn was up from the modest 10% improvement forecast with the 2020-21 results announcement a year ago.

Property investment earnings increased 20% to $494.6 million. This was underpinned by low supply in the company’s markets, continued strong occupancy at 98.7%, revaluation gains of $8.5 billion, development completions and growth in market rents, Goodman said on Tuesday.

Goodman said its property was 98.7% occupied at the end of June, with like-for-like net property income growth of 3.9% over the past year. Total assets under management rose 26% to $73.0 billion.

“By focusing our portfolio and A$13.6 billion development workbook on key infill locations, we have seen accelerating market rental growth, significant valuation uplift and subsequent outperformance of our partnerships,” Mr. Goodman said.

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