Asia Market Commentary

Lend Lease profits should please the market

2/7/2012, Peter Esho, Chief Market Analyst, City Index

It’s a new week, new month and new financial year and we are looking at some Australian listed companies updating their earnings forecast. Firstly, Lend Lease is out with what looks to be a solid earnings report. It’s not the easiest stock to forecast earnings and break down revenues for but today’s news that it will book an after tax profit of $485-505m for the 2012 financial year will please the market. The numbers stack up with market consensus of around $442m so the extent of the upward surprise is generally large, particularly in the market which is used to downgrades by now. One of the key highlights in this result is the successful integration of the Valemus business which Lend Lease acquired after a failed IPO attempt. There were many that doubted the integration of such an infrastructure business at the time but the opportunity to pounce and execute is now coming back to show up in very nice operating results. Construction is still a large part of the earnings pie and so the pipeline of future projects is key for ongoing earnings growth. There seems to be some good momentum in the stock at the moment, the market will just be watching earnings composition and any potential timing impacts over the next few years when results are announced at the upcoming reporting season. Pokies king out with earnings update Gaming group Aristocrat is also out with guidance for the first six months of the year, saying it expects $30-33m compared to $24.9m last year. But is this a good result? The market is already expecting a big turnaround this year. Consensus is for earnings to be around $39m for the first six months so on face value today’s announcement might disappoint but there could also be a timing issue and the uplift could be skewed towards the second half. They are again the issues the market will be looking for in late August when judging how realistic current 2012 consensus assumptions of 47 earnings growth really are. Our initial impression suggests these assumptions will probably have to be hosed down a little but that should detract from an otherwise positive turnaround story. Profits are generated in North America, Australia and Japan, respectively.

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