by Tajinder Dhillon.
18Q2 earnings season is underway with the first batch of nine companies reporting last week. Exhibit 1 provides a summary of reporting results.
Exhibit 1: Earnings Season Results
Overall, most companies missed EPS projections when compared to consensus, as determined by the Earnings Per Share Surprise % column. The highlights included Aker BP ASA (AKERBP.OL) who experienced an EPS and Revenue YoY growth of 111.1% and 64% respectively. Perhaps this may not be surprising as the Energy sector is expected to be the main driving force behind this quarters EPS growth rate, as mentioned in my prior post.
The majority of companies reporting last week came from beautiful Norway, so it is worth diving into a bit deeper. Many Banks and Insurers posted results including DNB ASA (DNB.OL), Gjensidige Forsikring ASA (GJFS.OL), and Storebrand ASA (STB.OL).
DNB ASA had plenty to cheer about, as both retail and business were taking out more loans which resulted in strong growth within these segments. The company is on its way of meeting their long-term Return on Equity (ROE) target of 12%, which came in at 11.8%. CFO Kjerstin Braathen stated, “The results are underpinned by a very strong macroeconomic condition and situation and outlook in the Norwegian economy.”
We can see this trajectory in motion when looking at the Citigroup Economic Surprise Index, which tracks how economic releases within a country compare to consensus expectations. We can see in Exhibit 2, that the Norwegian economy is outpacing consensus estimates which should signal an increase in consumer and business confidence levels.
Exhibit 2: Norway Citigroup Economic Surprise Index
While consumer and business sentiment may be increasing, the weather can certainly put a damper for a few Insurance companies. Gjensidige Forsikring ASA (GJFS.OL) missed EPS expectations by 6% and suffering a YoY decline of 8.2% in EPS growth. “2018 started off with a harsh and long-lasting winter. Both were severely affecting the first part of the second quarter … winter effects characterized the second quarter results, together with the continued deterioration in motor profitability in Norway. “ according to CEO Helge Baastad. Harsh winter conditions impacted residential, private and commercial property, with a total of $400-500m NOK in claims during the first half of 2018.
Storebrand ASA, another insurer reported a much more positive quarter which was attributed to “good growth in savings combined with strong insurance results and continued good cost control” according to CEO Odd Grefstad. Whilst the growth in the insurance sector has been low, they expect it to pick up towards the end of the quarter. Looking at I/B/E/S segment level estimates, Insurance is coming in at a 1% YoY growth with 2018 full-year revenue estimated at $669m NOK.
The star of the week was AKER BP ASA (AKERBP.OL) who reported YoY EPS and Revenue growth of 111.1% and 64% respectively. Given that many oil companies are benefitting from stronger oil prices, AKER BP ASA saw record levels in EBITDA. “EBITDA amounted to USD 735 million, which is the highest result ever in a quarter for a company and was obviously positively impacted by higher oil and gas prices” mentioned by CEO Karl Hersvik. Exhibit 3 notes the price of crude oil over the last year.
Exhibit 3: Crude Oil
AKER BP is looking to put its money to work, as they are increasing exploration spend this year both in existing and new fields. Looking at Capital Expenditure estimates for full-year 2018, we are seeing a 69% YoY growth with capex at $1,648m NOK. Another way to see this is comparing capital expenditures to revenue, which results in a staggering 43%.