Bourse Discourse: BEN, ADH, A2M

Company News

by Glenn Dyer

The final week of this reporting season kicked off yesterday with results from, among others, regional bank Bendigo and Adelaide (ASX:BEN), retailer Adairs (ASX:ADH) and Kiwi dairy leader A2 Milk (ASX:A2M).


Regional banking operator Bendigo and Adelaide (ASX:BEN) joined in the late 2022 earnings surge that the Commonwealth Bank and Westpac last week highlighted in their latest reports or updates with a 23% leap in cash earnings for the six months to December.

Bendigo said its cash earnings rose to $294.7 million with net interest margins rising solidly, as they did at the CBA and Westpac off the back of the Reserve Bank’s 8 interest rate increases in mid to late 2022.

That saw interim dividend raised to 29 cents a share, fully franked from 26.5 cents, an increase of more than 9% (which is just ahead of the inflation rate but not as big an increase as the 20% made by the CBA last Wednesday).

Interestingly Bendigo started a dividend reinvestment program (DRP). They are usually priced to encourage shareholders, especially small investors to take shares instead of cash – it’s a way for companies to retain cash and put a lid on outflows.

Bendigo noted that with APRA’s approval, it intends to “neutralise the impact of the DRP by arranging for a third party to purchase the shares on market rather than issue additional shares” which existing shareholders will like in that it will limit their dilution.

Statutory net profit jumped 49.5% to $249 million but the more accurate cash earnings were up 23% at $295 million for the half year.

The bank said its Net interest Margin (NIM) of 1.88% was up 19 basis points from a year earlier, thanks to the rate rises from the RBA which flowed through into higher lending rates on mortgages and business loans, and a much slower flow on to deposit rates.

The increases interest income saw the bank cut its cost to income ratio from 59.3% in the December, 2021 half year to 54.6% in the latest half.

While the bank saw total lending decline 1.1% to $77.0 billion in the half, total deposits increased 2.5% to $76.5 billion.

Total funding also increased to $88.9 billion up 1.5% from 1H FY22, with Bendigo reporting customer deposits represented 73.9% of its total funding during the six-months.

CEO Marnie Baker said in Monday’s statement, “Our digital bank Up has continued to drive growth with 613,000 customers and over $1.3 billion in deposits at the end of the half. Its flagship lending product Up Home was soft launched and settled $38 million in home loans.

“Our digital home loan product BEN Express reached $100 million in lending during the half with continued strong levels of enquiry expected. Pleasingly, more than 80% of UHome and BEN Express customers are new to bank.

She also said the bank had to content with big cashbacks offered by the big four banks, which made competition more intense in home lending (where most of the lending at the moment is for refinancing existing mortgages).

“We are seeing a continued contest for market share play out primarily amongst the big four banks, using incentives in the form of cash back offers for housing loans,” Baker added.

Baker noted that while the bank expects interest rates to peak in 2023, housing prices are likely to continue to moderate, leading to lower system credit growth.

Bendigo shares rose 1.8% to $9.79.


There was also a positive reaction to the interim results from Adairs (ASX:ADH), even though it trimmed full year guidance. The shares ended up 1.7% to $2.41 after dropping into the red and then bouncing back to trade positively.

Continuing high supply chain costs have forced Adairs to cut its full year guidance, as well as problems in a new warehouse and customer fulfilment operation.

The problems undermined what was a very strong December half performance.

Adairs reported record sales for the six months to December as shoppers snapped up homewares during the Christmas and Boxing Day sales at the end of the half year.

The company reported a 34.1% jump in sales to $324.2 million for the December half with earnings up by just under 24% to $21.8 million.

Despite the solid first half performance, directors left the interim dividend unchanged at 8 cents per share.

Adairs boss Mark Ronan said the company was “in a good position to manage what is likely to be a more challenging trading environment in the second half.”

Management said the first week of the second half saw record Boxing Day sales for both the Adairs and Focus brands. And after seven weeks, group sales are up 1.8% over the prior corresponding period, with growth from Adairs and Focus being offset by a 31.7% decline in Mocka sales.

In light of this, Adair’s reaffirmed its sales guidance for FY 2023 of $625 million to $665 million, but cut $5 million from its EBIT guidance range to between $70 and $80 million, blaming those “elevated supply chain costs.”

Some of these ‘elevated’ costs are self-inflicted, judging by the commentary with the results on Monday.

First the good news – the core Adairs business reported a 13.1% increase in sales to a record of $220.4 million. Instore sales grew 13.1% to $220.4 million, which offset a not unexpected 7.4% decline in online sales. The former reflects no COVID store closures during the period compared with the loss of 31% of trading days in late 2021.

Moore good news was the boost to sales from the Focus on Furniture business, which contributed sales of $78.6 million. It was only part of the business for one month in the prior corresponding period in 2021, but management estimates that its sales grew 20.1% year over year.

Now for the bad news – Mocka, the company’s online brand, had a disappointing half and reported a 26.8% drop in sales to $25.1 million. Management notes that this reflects customers returning to stores (Adairs was not alone in seeing this fall).

And on top of that, Adairs’ margins were under pressure during the period due to inbound container rates and industry-wide increases in delivery charges as logistics groups passed on their higher costs – especially energy.

And, in what Adairs didn’t want to have to report were problems in its new national distribution centre which is operated for the company by logistics giant, DHL.

Adairs said the operational outcomes from the new centre have been below expectations since becoming fully operational in July. Management said this has affected customer experiences and resulted in a significantly higher cost of operation.

Adairs said on Monday it and DHL are working to resolve these issues and claimed the operational outcomes are improving (but are still “below expectations”). By operational outcomes, Adair’s obviously means customers are not getting their orders on time, or at all and perhaps receiving the wrong items.

“As part of an updated agreement a new pricing model became effective in January 2023 which will see average variable costs per unit dispatched reduce by approximately 20% over 1H FY23 levels,” – a sign this is a major headache for the company and DHL.


Shares in A2 Milk (ASX:A2M) were rattled on Monday despite the company posting what was a solid December, 2022 half year performance.

Net profit rose 22% to $NZ68.5 million as its turn around gained traction and grew its market share for its baby formula in China, although sales fell as births in China dipped.

While the result was in line with the company’s expectations for double-digit revenue and earnings growth for the period, the weakish outlook wasn’t liked.

A2M said in its outlook that while it was not setting any guidance, it “expects “low double digit revenue growth in FY23” at EBITDA margins similar to FY22.

Some investors had been looking for something a bit more positive and an improvement on 2022.

The disappointment saw the shares fall more than 8% to $6.49.

A2M said it saw what it described as ” a strong first half performance in a very challenging market and continued improvement in execution against its refreshed growth strategy” in the December period.

It reported revenue growth of 18.6% to $NZ783.3 million in Chinese infant milk formula market down 12.5%, A2M said it saw record market shares off the back of “increased investment and higher impact marketing campaigns. Innovation continues to ramp up with recent product launches in all categories supporting growth.”

A2M said its on-market share buyback of up to $NZ150 million commenced in the December half year and is 60.1% complete

The company said it ended the year with strong balance sheet with closing net cash of $NZ707.2 million.

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