Tuesday 08 August 2017 by FIIG Research Company updates

Company updates – Avis, Fortescue Metals, Frontier, Genworth, Glencore, Liberty Financial, Navient, QBE, RWH Financial, Suncorp, Transocean, Transurban and Verizon

This week, we provide 2Q17 results for Avis, Frontier Communications, Genworth, Glencore, Suncorp, Transocean and Transurban, acquisitions by Liberty Financial and Navient, QBE to refund customers for add on insurance, RWH redeemed its nominal bonds, and Verizon launched a new multi tranche kangaroo bond 

New company research for Adani Abbot Point Terminal

We have provided a 2017 full research report for Adani Abbot Point Terminal.

The research report is available here to wholesale investors and here for retail investors. 

Avis Budget Group - 2Q17 results

On 7 August 2017, Avis Budget Group reported its second quarter 2017 results.

Key points:

  • Revenue at USD2.2bn was unchanged in the second quarter compared to prior year
  • Second quarter 2017 net income of USD3m
  • Adjusted EBITDA of USD140m and adjusted net income of USD25m for 2Q17
  • Company identifies additional cost savings of USD25m, bringing its total 2017 to USD75m

The link to Avis’ results announcement is available here.External link - opens in a new window 

Fortescue Metals Group unsecured notes rating lowered by S&P

S&P lowered its long term issue credit rating on Fortescue’s senior unsecured notes due in 2022 and 2024 to BB from BB+. The action reflects S&P’s view of a lower recovery amount available for senior unsecured noteholders because of the potential for a higher amount of priority following the company’s placement of a USD525m senior secured revolving credit facility.

The corporate credit rating on Fortescue (BB+/Stable/--) was affirmed due to the company’s continued strong operating performance and ability to maintain credit metrics in line with the BB+ rating even under moderate iron ore price pressure.

The issuer rating on the company’s senior secured notes due 2022 is unaffected by the revolving credit facility and continues to be supported by the company’s reduced debt, low cost position on the global iron ore cost curve, and focus on maintaining a prudent level of leverage, which improves its resilience to periods of iron ore price weakness. 

Frontier Communications - 2Q17 results

On 1 August 2017, Frontier Communications reported its 2Q17 results.

Key highlights:

  • 2Q17 consolidated revenues were USD2.3bn down 12% yoy
  • Within consolidated revenue, consumer revenue was USD1.12bn, commercial revenue was USD982m and regulatory revenue was USD198m
  • Net loss for the second quarter of 2017 was USD662m, principally driven by a USD532m (after tax) goodwill impairment charge
  • Adjusted EBITDA totalled USD906m or 39.3% of total revenue, an increase from 39.2% in the first quarter of 2017

The link to Frontier’s results announcement is available here.External link - opens in a new window 

Genworth Financial (GNW US) - 2Q17 results

On 1 August 2017, Genworth Financial reported its second quarter 2017 results.

Key highlights:

  • Reported net income of USD202m, up 17% as compared with 2Q16
  • The adjusted operating income was USD151m, up 23% as compared to 2Q16
  • Merger agreement deadline with China Oceanwide Holdings Group Co., Ltd (Oceanwide) extended to 30 November 2017
  • Additional progress made on US Life Restructuring Plan with the remaining internal reinsurance transactions completed effectively 1 July 2017
  • US Mortgage Insurance (MI) 2Q17 adjusted operating earnings increased 49% compared to the second quarter of 2016, which includes a favourable USD10m reserve adjustment in the current quarter
  • Strong loss ratio and capital levels in the second quarter for US MI and Canada MI
  • Net income included USD51m of investment gains, net of taxes and other adjustments, related to fixed income tenders and derivative gains
  • Holding company cash and liquid assets of approximately USD860m

The link to Genworth’s results announcement is available here.External link - opens in a new window

The China Oceanwide/GNW deal is being caught in a wider geopolitical net with President Trump describing the trade relationship with China as “extremely unfair”. Furthermore, Delaware regulators have still not announced a public hearing date for the deal. 

Glencore plc

On 27 July 2017, Glencore plc released its 2017 half year production report. The company faced wet weather in Africa and changes in the mine plan and ore grades.

Production highlights:

  • Own sourced copper production of 642,900 tonnes was down 9% on 1H16
  • Own sourced zinc production of 570,800 tonnes was up 13%
  • Own sourced nickel production of 51,200 tonnes was down 10%
  • Attributable ferrochrome production of 836,000 tonnes was up 10%
  • Coal production of 61.1m tonnes was up 4% on 1H16
  • Glencore’s oil entitlement production interest of 2.6m barrels was down 39% on 1H16
  • The announced sales of Rosh Pinah and Perkoa to Trevali Mining are subject to customary closing conditions, with the transaction currently expected to complete in August
  • Following the sale of 50% of Glencore Agri, this business and segment is now fully reported as Marketing. Including this effect, full year 2017 Marketing EBIT guidance range is being increased to USD2.4bn to USD2.7bn (previously USD2.bn to USD2.6bn)

The link to Glencore’s full production report is available here.External link - opens in a new window 

Liberty Financial acquires aggregator, boosts distribution network

Liberty Financial acquired wholesale aggregator National Mortgage Brokers (nMB) from Aussie Home Loans. "The acquisition of nMB expands our distribution capabilities and creates unique growth opportunities for both organisations. nMB, under Aussie's ownership, has grown to a team of over 400 brokers and a loan book of almost AUD14 billion," said James Boyle, CEO of Liberty Financial.

The link to the announcement is available here.External link - opens in a new window

Navient Corporation

On 1 August 2017, Navient announced the acquisition of Duncan Solutions, a transportation revenue management company serving municipalities and toll authorities.

Over the past several years, Navient has expanded its footprint and focus to provide high quality business processing services to federal, state, municipal, court and toll clients. This acquisition should deepen Navient's offerings in the municipal and toll markets and builds on the talents and success of its Gila subsidiary acquired in 2015.

The link to Navient’s full announcement is available here.External link - opens in a new window 

QBE Insurance

QBE must refund AUD15.9m to more than 35,000 customers for add on insurance bought through car dealerships where the insurance provided little or no benefit according to a ruling by the Australian Securities and Investments Commission.

QBE has begun writing to those customers who have bought Guaranteed Asset Protection (GAP) insurance or Consumer Credit Insurance (CCI) in the past six years to offer them a refund. The insurance company will be contacting customers entitled to a refund progressively over the coming months.

The link to QBE’s full statement is available here.External link - opens in a new window 

RWH redeemed its nominal bonds

RWH Finance Pty Ltd’s had on 3 August 2017, redeemed its AUD148m of nominal bonds (ISIN: AU300RWHF012) for an amount equal to 100% of the outstanding principal amount of the nominal bonds.

The redemption follows the completion of RWH Finance’s refinancing exercise, including the receipt of consent from its AUD145m indexed annuity bond holders and the Victorian State government.

Suncorp Group Ltd - FY17 results

On 3 August 2017, Suncorp Group Ltd reported its annual results.  

Key points:

  • Net profit after tax (NPAT) from the bank’s business functions of Insurance, Banking & Wealth and New Zealand was AUD1,205m. The reported NPAT, before non controlling interests was AUD1,075m
  • Gross written premium increased by 4.7% to AUD9,456m
  • The reported income tax return (ITR) was AUD965m, representing a reported ITR ratio of 11.8%. The net interest margin fell 3bps to 1.83%
  • Investor lending growth of 4% was, Suncorp noted “well within the supervisory measure of ten per cent”
  • The bank trimmed its share of interest only loans to 28%, inside APRA’s new cap.
  • Bad debts as a percentage of total lending assets reduced to 0.01% for 2016-17 from 0.03% for last financial year
  • The ratio of impairment losses to gross loans all of 0.01%, one third the level of 2016. The ratio of net impaired loans to gross loans was 0.23%
  • Problems with an IT upgrade for its Oracle systems are one obstacle for the bank. The aim now is to "complete the final migration phase for remaining retail loans at which point it will pause the migration of deposits and transaction banking products, pending further system enhancements from the vendor."

The link to Suncorp’s full annual report is available here.External link - opens in a new window 

Transocean Ltd - 2Q17 results

On 2 August 2017, Transocean reported its second quarter 2017 results.

Key points:

  • Revenues were USD751m, compared with USD785m in 1Q17
  • Revenue efficiency was 94.7%, compared with 97.8% in 1Q17
  • Operating and maintenance expense was USD333m, compared with USD343m in 1Q17
  • Adjusted net income was USD1m, excluding USD1.691bn of net unfavourable items primarily related to the previously announced USD1.597bn loss on the divestiture of the jackup fleet
  • Adjusted normalised EBITDA margin was USD347m or 49%, compared with USD361m or 48% in the prior quarter
  • Cash flows from operating activities were USD319m, up from USD184m in the prior quarter
  • Repurchased an aggregate principal amount of debt of USD1.343bn, including cash tender offers of USD1.212bn and open market repurchases of USD131m primarily associated with near dated debt
  • Contract backlog was USD10.2bn as of the July 2017 Fleet Status Report
  • General and administrative expense was USD35m, down from USD39m in 1Q17 
  • Depreciation expense was USD219m, down from USD232m in 1Q17
  • Interest expense, net of amounts capitalised, was USD129m compared with USD127m in the prior quarter.  Capitalised interest was unchanged at USD30m. Interest income was USD7m, compared with USD6m in the prior quarter
  • The effective tax rate was 2.2%, up from 73% in the prior quarter. The effective tax rate excluding discrete items was 74% compared with 82.1% in the previous quarter
  • Capital expenditures of USD136m were primarily related to the company’s newbuild drillships. This compares with USD122m in the previous quarter

The link to Transocean’s results announcement is available here.External link - opens in a new window

Transurban Queensland – FY17 results

We have provided a report for Transurban Queensland FY17 key operational and financial results.  

The link to the report is available here.External link - opens in a new window

Verizon Communications

Verizon Communications Inc. (BBB+ stable/Baa1 stable/A- stable) (S&P/Moody’s/Fitch), one of the world’s leading providers of communications, information and entertainment products and services, mandated Deutsche Bank and JPMorgan to arrange a fixed income investor call. The company launched a new, AUD2.2bn multi tranche Australian dollar denominated kangaroo bond on 3 August 2017.

The link to the full pricing details of the bond is available here.External link - opens in a new window