Wilson Asset Management weekly: BHP and iSelect

Chris Stott

The third and busiest week of reporting season saw strong performance from the mining services sector, while most companies continue to provide subdued outlook statements reflecting current economic conditions. Overall company results have not met the market’s expectations invoking strong reactions from investors in some cases. In this week's report we provide a brief summary of iSelect and BHP's results.

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Market overview

The S&P/ASX All Ordinaries Accumulation Index closed up 0.3% for the week. This weekend, all eyes will be on Jackson Hole, Wyoming, where the annual economics retreat will attract central bankers from around the world. Investors are waiting in anticipation of comments by European Central Bank (ECB) president Mario Draghi, regarding the unwinding of the bank’s balance sheet. Ahead of the meeting, investors are speculating whether the US Federal Reserve will discuss the implications of low inflation for interest rates.

We dig BHP

BHP (ASX: BHP) announced its full year results on Tuesday, reporting a net profit of US $5.9 billion up from a loss of US $6.4 billion reported a year earlier. The company also reported earnings before interest, tax, depreciation and amortisation (EBITDA) of US $40.3 billion, up from US $12.3 billion in the prior corresponding period. We were pleased with the company’s decision to realise the value of its on-shore oil assets as advocated by US-based activist hedge fund, Elliott Management, and supported by us. We believe this decision is in the best interests of BHP’s shareholders. Shares in BHP closed up 5.1% for the week. We own BHP as a market-driven investment in WAM Leaders and Century Australia.

Disappointing selection

Last Wednesday, iSelect (ASX: ISU) announced its full year results, reporting revenue of $185 million, up 8%, and EBITDA of $29 million, up 33%. Despite the increase in profit and earnings, the result was below analysts’ expectations. Although revenue in its energy and telco sector grew 25%, we believe the result was not enough to offset the company’s sluggish growth in its health, life and general insurance verticals. Following the announcement, shares in iSelect fell 12.9%. We owned iSelect as a research-driven investment in WAM Capital and WAM Research and decided to exit our position following the announcement.


Chris Stott

Chris is the Chief Investment Officer of Wilson Asset Management, having joined the company in 2006. He is also the Portfolio Manager responsible for WAM Capital (ASX:WAM), WAM Research (ASX:WAX), WAM Active (ASX:WAA) and WAM MicroCap (ASX:WMI).

Expertise

ASX:BHP ASX:WAM ASX:WAX ASX:WLE asx:isu ASX:CYA

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