5 ASX shares that have downgraded guidance this reporting season

It's been a mixed reporting season so far, with some ASX shares spurred higher off the back of encouraging results, while others are sold off.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's been a mixed reporting season so far, with some ASX shares spurred higher off the back of encouraging results, while others have been sold off. Investors have been unforgiving when results disappoint or clouds appear on the horizon.

Here we take a look at 5 shares that have downgraded guidance this reporting season, and ask why. 

Corporate Travel Management Ltd (ASX: CTD)

Corporate Travel Management had forecast full year underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $165–$175 million. Last week, however, the company downgraded its guidance due to the coronavirus-induced travel restrictions. Corporate Travel's full-year EBITDA is now forecast to be between $125 million and $150 million. This would represent a flat result on FY19 results at the upper end, or a 16.5% reduction at the lower end of the range. 

The actual impact of the coronavirus on Corporate Travel's results will depend on the severity and duration of the outbreak. The company has assumed the outbreak will extend throughout the second half with a peak impact through February and March. Corporate Travel assumes activity will return to normal levels by July.

A key difference with the coronavirus outbreak compared to previous epidemics is government restrictions on travel to and from China, which is likely to increase the severity of impacts. Corporate Travel reports that in its Asian region, approximately one-third of transactions relate to flights in to and out of China. In February, post-Chinese New Year activity is down 50%, largely driven by border closures and travel bans. Corporate Travel has advised that significant cost management measures are underway to mitigate lower client activity. 

Across the rest of the world, less than 2% of flights relate to travel to and from China, with less than 4% of flights relating to travel to and from Asia. Minimal impact has been reported in Europe and the US to date. Declines in activity in Australia and New Zealand have been reported, which Corporate Travel believes is primarily related to the coronavirus. 

Cochlear Limited (ASX: COH)

Cochlear has also downgraded its full year guidance due to the impacts of the coronavirus. Previously it had forecast underlying net profit of $290–$300 million. This was revised downward to $270–$290 million last week. CEO Dig Howitt said, "while we are delivering strong results from the cochlear implant business, profit growth will be lower than our original expectations due to the impact of the coronavirus on sales in greater China." 

The coronavirus is expected to reduce sales in greater China as hospitals defer surgeries, including cochlear implants, to limit the risk of infection from the virus. The low end of guidance factors in a significant decline in sales in the second half. Cochlear is confident that many of the delayed surgeries will progress once hospitals resume normal operations. While the virus represents a near-term challenge, Cochlear believes that the longer-term opportunity to grow markets remains unchanged. 

Synlait Milk Ltd (ASX: SM1)

Synlait Milk recorded net profits of $82.2 million in FY19, a 10% increase over the previous year. In September, the company advised it expected FY20 profits to continue to grow at a similar rate. In an update to full year guidance provided earlier this month, however, Synlait Milk advised it now expects full year profits to be between $70 million and $85 million in FY20. 

The company advised that the expected rate of growth in profits has not been achieved. This was due to a number of factors. Infant base powder sales have been significantly lower than anticipated due to China infant nutrition market consolidation. This has caused a reduction in demand from brand owners who are yet to receive brand registration. 

Prices of lactoferrin, a protein commonly used in infant formulas, have been more volatile than previously anticipated, which has also impacted Synlait's earnings. While Synlait still anticipates growth in consumer-packaged infant formula sales volumes over the full year, this growth is not as strong as initially envisaged. 

In light of these factors, Synlait has also updated its expected half year performance. Net profit after tax (NPAT) is forecast to be in the range of $26.5 million to $28.5 million for the 6 months ending 31 December 2019. Sylait's HY19 NPAT was $37.3 million. 

The half year result will be impacted by lower sales of ingredient products than anticipated due to sales phasing and product mix impacts. Lower sales of infant base powders due to China infant nutrition market consolidation will also impact results. Finally, increased incremental interest, manufacturing, and costs associated with the Pokeno and advanced liquid dairy packaging facilities have had an impact.  

WiseTech Global Ltd (ASX: WTC

WiseTech is another victim of the coronavirus outbreak, downgrading its forecast FY20 revenue to $420–$450 million, and forecasting an EBITDA of $114–$132 million. The outbreak has resulted in an effective shutdown of China, which is a critical driver of the global manufacturing supply chain. This has slowed supply chains and economic trade across the world, delaying execution of logistics activities by logistics service providers. 

A significant rebound in volumes is anticipated as manufacturing in China recovers, inventories worldwide are replenished, and supply chain volumes are restored. The interim delay, however, may cause some transactional revenues to move to the next reporting period.  

Gentrack Group Ltd (ASX: GTK)

Gentrack has reforecast in the face of challenging conditions, resulting in its forecast revenue declining significantly. Full year EBITDA is now expected to be between NZ$8 million and NZ$12 million. Previously, Gentrack had advised its FY20 results would be broadly flat on the previous year, when EBITDA was $24.8 million. 

Gentrack advised it is experiencing difficult conditions in its utility markets. In the UK and Australia, regulatory price caps on electricity and competitive market conditions have both led to reductions and deferrals of IT investment, which has impacted Gentrack's sales pipeline. Gentrack is also transitioning from an upfront license model to a recurring SaaS model, whereby initial contract values are declining and being replaced by more predictable contracted recurring payments. 

In light of these market conditions Gentrack is taking action to reduce its cost base by approximately $8 million on a full year basis. There will be an approximate $4 million benefit in the current year. 

Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A male electricity worker in hard hat and high visibility vest stands underneath large electricity generation towers as he holds a laptop computer and gazes up at the high voltage wires overhead.
Share Market News

ASX 200 utilities shares outperform: Are investors switching to defensives?

The utilities sector was the best performing sector by a wide margin last week.

Read more »

A couple cheers as they sit on their lounge looking at their laptop and reading about the rising Redbubble share price
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

two men smiling with a laptop in front of them, symbolising a rising share price.
Broker Notes

These ASX 200 shares could rise 25% to 60%

Analysts think these shares are top buys and could rise materially.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors finished the trading week on a sour note today.

Read more »

Happy teen friends jumping in front of a wall.
Share Gainers

4 ASX 200 stocks smashing the benchmark this week

Investors are sending these four ASX 200 stocks soaring this week. But why?

Read more »

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Broker Notes

Bell Potter says this growing ASX 200 stock can rise over 40%

Big returns could be on the cards for buyers of this stock.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Share Market News

Which delivered superior returns in FY25: CSL, A2 Milk, or Telstra shares?

We review the share price growth and dividend income delivered to investors in FY25.

Read more »