3 solid results, 3 with red flags and one going gangbusters that is flying under the radar

With reporting season in full swing and results flowing freely I sat down with Kyle Macyntyre to share our take on the results from some of the major companies to report this week.

Headline numbers can often distract you from the key message of the result and what it means for profits and dividends. We also discuss three companies that have raised red flags in our screening process that delivered poor results.

Key points

• BHP Group: Despite BHP's headline numbers revealing challenges with a statutory profit dip, a deeper look shows a reasonable result.
• Wesfarmers and Kmart's Success: Wesfarmers surprises with Kmart's stellar performance, reflecting consumer behaviour trends amid economic shifts.
• Ampol's Strategic Dividend Moves: Ampol’s special dividend a bonus as the company seeks to release excess franking.

Click on the player to watch the video or read an edited transcript below. 

Edited Transcript

Good day, and welcome to this Australian Reporting Season update with Dr Don Hamson from Plato Investment Management. It seemed like some tough results on the big end of town. What was your read on what happened?

Dr Don Hamson: BHP Group (ASX: BHP)  reported this morning and the headline number, the statutory profit, was actually less than a billion dollars, which is the worst for seven or eight years. However, it wasn't as bad as that. They pre announced $5.7 bn worth of write downs. They've actually written down nickel operations, not even to nothing but to negative. So they actually put a $300 mn cost of remediation. So basically saying it's not worth anything.

There was a write down of their San Marco, Brazilian iron ore, but if you look at the underlying profit, it wasn't that bad. It was in line with last year's $6.6 bn US. In Aussie dollar terms, that is actually more than $10 bn. So that's not a bad result to make more than $10 bn in the half. They also paid a reasonable dividend, a bit more than the market was forecasting 69 cents. But again, that's more than a dollar Australian, fully franked. A bit less than last year, but still not bad, yield over 7% gross. So I think that's not a bad investment for Australians.

They updated the Jansen Potash Project that's 38% complete and should be producing in calendar 26. They gave some commentary on iron ore prices, despite everybody calling China down, Chinese demand has been pretty strong and iron oil prices have remained above US $ 130 a tonne for most of the half.

We also saw them say that India was a bright spot, and we've been calling out India for a while. The next big growth area for steel is India.

Something that surprised me about the retailer is how resilient they've been.

DH: Wesfarmers (ASX: WES) was another one of the retailers to come out with a good result. Well, better than it expected and the standout there, the real sizzle in Wesfarmers is not from Bunnings, but actually it's from Kmart. The reason is that people are trading down, and your dollar goes further at Kmart; you can buy things much cheaper. They actually made $600 mn profit out of that division, which is a record for them. Their sales are up 5% when the market was only forecasting 1%. So a bit of an increase in divvy there only 3 cents to 91 cents from 88. It's not really a strong yield stock under 5% gross yield, but it's still been a reasonable performer.

Something you've been talking about a lot is Ampol (ASX: ALD) and the excess franking that they've had. How has this played out?

DH: Well, again, if you look at the headline or statutory number, it was actually down $540 mn, but their underlying profit was slightly up $740 million. But they did surprise the market with a higher dividend of $1.20 versus a $1.05 last year and a 60-cent special dividend, fully franked on top of that.

So we've been sort of forecasting that they've got excess franking, they need to get that out to shareholders and they can't do buybacks anymore. So now they've paid another special dividend, and even if you don't account for the special, they're on about an 8% gross yield. If you add the special dividend this year, they're going to deliver a yield of more than 10%. So that's a pretty good payout, but their CapEx is very low, so I think they can maintain this sort of payout ratio.

That's three pretty good results. BHP, Wesfarmers, Ampol. Were there any shockers out there?

DH: There are always a few shockers, and thankfully, we've avoided them, but ASX has continued to disappoint.

Another one, which we've been flagging with a lot of red flags, has been Lendlease, and they're struggling. Today, Sims Metal came out with a real shocker and discontinued their dividends. So, they are some of the shockers that we avoided

One that I didn't mention before, but is worthy of a call is Goodman Group continued to deliver, even though they wrote down some of their assets. Actually, they're going gangbusters in data centres and they're forecasting $2 bn worth of profits this year. Their share price, as well as Ampol's, actually hit record highs on the announcement of their results.

So a good result from Goodman's, but it's not really a yield stock. It hasn't increased its dividend for five or six years.