Reporting Season Highlights – NWL, WBC & SXY

We recap some of the profit reporting season highlights including Netwealth, Westpac Group and Senex Energy. Full reports are available below via links.

Netwealth (NWL)

NWL delivered a robust FY19 result with underlying NPAT up 23.9% vs pcp, despite absorbing pricing pressures in the market. These pressures accelerated last financial year when BT Panorama reset its rate card, which resulted in a flurry of countermeasures by the established and emerging independent players. Further, NWL has flagged that it will be introducing a range of SaaS style pricing for services which aren’t readily available by other investment platforms in the market. NWL is looking to capitalise on its technology edge, breaking down the various services on its platform so that users pay for more functionality. This should help NWL protect its margin.

Following NWL’s result, we have cut our underlying EPS estimates by -2.8%, -2.4% and -2.8% for FY20, FY21 and FY22 respectively. The change is primarily driven by recent weakness in share markets. Following these changes, our revised Price Target is $10.14 per share (previously $10.28) and we reiterate our Buy recommendation.

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Westpac Group (WBC)

WBC released a limited 3Q19 trading update today. Unlike 1Q19 that had additional disclosures such as cash NPAT and credit impairment charge (WBC being a SEC registered bank was seeking US wholesale funding at that time), there was no such disclosure in today’s 3Q19 update. Based on CET1 ratio and RWA movements and assuming no other major capital movements, we estimate 3Q19 cash earnings of $1.93bn that was broadly in line with our $1.94bn forecast. While the credit impairment charge was also not disclosed, actual losses were $234m in 3Q19 vs. $241m in 2Q19 and $187m in 1Q19. This trend suggests a credit impairment charge of possibly up to $200m in 3Q19 vs. our $215/13bp GLA estimate.

Our estimates are unchanged but we have increased the price target by ~4% to $29.50 after allowing for further DCF time creep and lowering the required dividend valuation yield from 6.0% to 5.5% (that is now in line with a lower rate environment). WBC’s share price has done relatively well since May – based on a 12-month TSR of <12% and potential capital headwinds, a Hold rating appears justified for now.

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Senex Energy (SXY)

The key takeaways from SXY’s FY19 result announcement are that the development of the company’s Surat Basin assets is on track and that the group is funded to pursue its growth strategy.

FY19 EBITDAX of $42.3m and NPAT of 3.3m were largely in line with our estimates. Operating cash flow of $44.5m was slightly ahead of our estimate of $42m. As expected and given the growth phase of SXY’s business, no dividend was declared. As a result of this report we have increased our EPS estimates by 8% in FY20 and by 3% in FY21 on quicker ramp-up of SXY’s core Surat Basin assets. Our FY22 NPAT is now 9% lower, with Cooper Basin tapering off sooner than previously estimated.

Our Buy recommendation is supported by a positive outlook for the Australian East Coast domestic gas market and global energy markets more broadly. SXY is adequately funded to pursue its growth strategy. During FY20, SXY will ramp-up production at its key Surat Basin coal seam gas assets and deliver gas into supply short markets. As a result, the company will see substantial earnings and free cash flow growth over the next two years.

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