Ann: FY21 Annual Report, page-2

Plenty to unwrap in this result, but it looks very strong on paper (especially the second-half, which saw an acceleration in growth -  for Group EBIT: JH21 +25 on pcp, cf., DH20 +15% on pcp;  and for EPS:  JH21 +17% on pcp, cf. DH20 +2% on pcp... although the DH20 EPS was flattered by a lower tax rate, 27.6% vs 30.4% in DH19).

In terms of geography, Australia shot the lights out in the second-half, with JH21 EBIT up 33% on pcp (DH20 was up 15% on pcp).  The ANZ  EBIT margin in JH21 was 13%, up more than 200bp on JH20.

For further context, Australia EBIT of $381m for the full-year compares with FY2019 EBIT  (so pre-Covid) of $314m, i.e., 21% higher!

(Who said Reece bought Moresco because the company was were ex-growth in Australia?)


The USA result was also not bad, considering the 15%-odd increase in the A$:US$ rate between JH21 and JH20: USA Revenue was down only 1% in JH21, so in constant currency terms the increase would have been in the mid- to high teen percent.

And then, in terms of other bouquets, the most notable one was the pristine shape of the balance sheet, with Net Debt now of only $507m, down from $760m at the end of FY20.  

Even after lease principal payments, the company generated around $500m in FCF over the past 18 months, so the equity capital raised during the throes of Covid in April 2020 was not needed at all.

But of course, it is easy to say that with the benefit of hindsight; besides it was all conducted on an entitlement basis, so no shareholder harm done (excluding those shareholders without the capital to take up their entitlements, of course)

The one brickbat in the result was the USA JH21 EBIT margin of just 3.1% (down from 3.4%in JH20, and 4.1% in DH20).

But all of this is, to some degree, a moot discussion because we know that the strong JH21 result reflects the cycling off a weak comparative period, which is when Covid first struck.

But what is certainly not moot is the incongruence of a company which makes a net profit of $285m (albeit it still partly pandemic impacted) being valued at $16.5bn.

From that starting point, it is really incredibly hard to see this stock outperforming over the coming three years like it did over the past three.

I had been selling down quite aggressively leading into this result based not on the expectation of a poor result, but purely on valuation grounds.

Based on this result, which is of a very good quality, I would not be surprised if the share price momentum continues.

Despite the totally bat guano valuation.

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