21 Jan 20 -Markets Digest Earnings | James Hardie

21 January 2020


Global markets were mixed overnight, as investors awaited a fresh batch of corporate earnings and some key central bank meetings this week.
We are currently in the quarterly US earnings season, where companies announce their quarterly profit results. During US earnings season investor focus usually shifts back to company announcements, rather than broader economic or other issues.

Stock in Focus: James Hardie (JHX:ASX)

JHX shares continue to soar after the building materials after delivering a solid set of figures for the first half of the 2020 financial year, continuing the trend from the first quarter and lifted its full year earnings guidance.

The upgraded guidance was underpinned by meaningful contributions from Europe, and growth in the US housing market, as overall construction activity rose, coupled with improved operating performance in the US due to larger sales volumes improving costs – both expected to be partially offset weakness facing the ‘smaller’ (in context of JHX) Australian and New Zealand markets which are expected to remain flat. Group net sales were up +2% from last year to US$1,316.9m, and adjusted operating earnings (EBIT) came in at US$258.6m and adjusted net operating profit tax (NOPAT) was US$98.6m for the half, both up +21% and +17% respectively from the same period last year. This was helped by strong performance in North American Fibre cement segment, delivering good volume growth under favourable market conditions and widening earnings (EBIT) margins. A strong contribution from the Europe building product segment also offset weakness across Asian Pacific, predominately Australia. JHX earnings in AUD terms are also benefitting from a tailwind of a significantly weaker Aussie Dollar.
Operationally if JHX are able to deliver and outperform the market like they have done recently and with a low-interest rate environment set to boost construction activity in the US (JHX’s largest market), this could offset near-term weakness in the Australasian markets.  Given the upbeat outlook in the US market we maintain our BUY recommendation, however with a high-risk caveat given JHX’s current valuation.
We currently have a BUY (High-Risk) rating on JHX.


Australia & New Zealand Market Movers

The Australian market started the week in positive territory (ASX 200 index +0.22%), to seal the market's fifth straight day of gains, with CSL and the miners carrying the benchmark to a new historic high and helping the market shrug off a raft of profit downgrades. The ASX is up a whopping 5.9% this year.

Company “confession season” continued on Monday and underlined the woes of some Australian firms ahead of February reporting season – particularly given the recent bushfire crisis. Online retailer Kogan sank, falling 22.2% after telling shareholders that profit growth had slowed significantly since the September quarter. Super Retail shares lost 1.8% after it told investors that first-half sales were hurt by the bushfires that swept the east coast late last year and into the early days of 2020. Health insurer Nib tumbled 12.7% after warning that its financial year 2020 underlying operating profit could be as much as $30 million below previous guidance for underlying operating profit of at least $200 million.
The New Zealand market sold off on Monday (NZX 50 index -0.45%) as Gentrack sank 13.6% to $2.35, below the $2.40 price the shares were sold at in a 2014 initial public offering. The utilities software developer said annual earnings will drop by as much as two thirds as tighter regulation in Australian and British energy markets has weighed on its sales pipeline, in another consecutive earnings downgrade. Outside the benchmark index, Comvita fell 1.3% as it announced the outcome of a strategic review, and will create an operational separation between its honey supply and branded product businesses. Serko rose to a record, valuing it at $515.7 million. The online travel management platform developer has attracted support and some investors anticipate it will be added to the benchmark index at Gentrack’s expense.


3 Things Markets Will be Watching this Week

  1. US Earnings season is underway with companies reporting 4th quarter 2019 profit results.
  2. The European Central Bank has a meeting on Thursday.
  3.  Australian employment data is also published on Thursday.

Have a Great Day,


Global markets were mixed overnight, as investors awaited a fresh batch of corporate earnings and some key central bank meetings this week.

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