Reporting season continued last week with investors rewarding companies that performed better than expected and punishing those that failed to meet expectations. Fears regarding the spread of coronavirus intensified, with markets catching the contagion.
A market correction saw the S&P/ASX 200 Index (INDEXASX: XJO) fall more than 10% from recent highs and the Australian dollar hit an 11-year low.
In light of this recent market turbulence, we take a look at last week's worst performing shares and the reasons their share prices were under pressure.
Webjet Limited (ASX: WEB)
Webjet shares crashed 29.2% lower last week to close the week at $9.56. While there was no news out of the online travel agency last week, its shares were sold off as fears over the spread of coronavirus escalated. Webjet and fellow travel shares were in the firing line as investors began considering the potential for coronavirus to spread worldwide.
Webjet factored coronavirus into its downgraded guidance the week before last, although advised that it was challenging to predict the impacts with any certainty. To date, Webjet has estimated a reduction in second half earnings before interest tax depreciation and amortisation (EBITDA) of between $7 million and $15 million. Revised FY20 EBITDA guidance of $147–$165 million was issued, down from $162–$172 million.
Even with guidance revised downward, Webjet is predicting FY20 EBITDA will be up 14–28% over FY19, although given the sell down in Webjet shares, it seems the market is more pessimistic. In the first half, Webjet reported a 43% increase in underlying EBITDA, up to $86.3 million.
Webjet's first half net profit after tax (NPAT) increased 36% to $43.2 million, while underlying earnings per share were up 22% to 31.9 cents. An interim dividend of 9 cents per share was declared, up from 8.5 cents in 1HFY19. Webjet has advised that it expects its overall earnings profile will return quickly to prior expectations once the impact of coronavirus subsides.
Clinuvel Pharmaceuticals Limited (ASX: CUV)
Clinuvel Pharmaceuticals shares dropped 29.1% last week to finish the week at $17.77. The skincare treatment company released its half year results last week, which revealed a major slump in profits.
Clinuvel reported a 74% decrease in profits, which fell to just over $1 million from more than $4 million in 1HFY19. While revenue increased 11% to $9.97 million, expenses increased by 54% to $8.74 million. The increase in expenses was attributed to increased investment across the business, including in manufacturing supply and distribution, marketing, and personnel.
Clinuvel says the extra spending was part of a long-term plan under which the company will self-finance its growth, including expansion into the US. Currently sold in Europe, Clinuvel's Scenesse treatment received FDA approval late last year.
Scenesse is used to treat erythropoietic protoporphyria, a metabolic condition which causes pain and skin damage when the sufferer is exposed to sunlight. Scenesse works by increasing levels of melanin in the skin and also acts as a shield against UV radiation.
Reliance Worldwide Corporation Limited (ASX: RWC)
Shares in Reliance Worldwide dropped 27.3% last week to $3.38 following the release of the plumbing parts provider's half year results. Reliance reported a 22% fall in net profit, which was reduced to $50.1 million.
Net sales increased by 5% to $569.3 million, largely due to favourable currency foreign exchange movements, namely the weaker Australian dollar. Net sales growth on a constant currency basis was 0.4%. Reliance reported trading conditions were weaker than expected, with total new dwelling commencement in Australia down 21.5% in the 12 months ended September 2019.
EBITDA of $126.3 million was reported, down 2% on the prior period, with cost of goods inflation and lower manufacturing volumes in all regions negatively impacting the result. Depreciation expenses also increased by $7.9 million to $25.9 million as a result of the adoption of AASB 16.
NPAT fell 22% on the prior period to $50.1 million, with most markets weaker than expected meaning sales growth was lower than projected. Earnings per share were down 22% on the prior period to 6.4 cents. A dividend of 4.5 cents per share was declared, up from 4 cents in 2018. The dividend, however, was only 20% franked compared to 100% franked in the previous year. The target payout range remains 40–60% of NPAT.
Link Administration Holdings Ltd (ASX: LNK)
Link Administration Holdings shares toppled 26.8% last week to close at $4.70. The fall was caused by a mediocre half year update where the administration services provider reported lower revenue and profits and warned that full year EBITDA could be 10% lower than the prior year.
Link reported a 4% drop in revenue, which fell to $624 million, and an 11% drop in EBITDA, which fell to $163 million. Group Managing Director John McMurtrie said it was a transitional year for the company, which was reflected in results. NPAT of $29 million was recorded, an 85% drop on the prior corresponding period. Link declared a 6.5 cent dividend, fully franked, down from 8 cents in the prior corresponding period.
Link says its medium term outlook is strong, with recurring revenues accounting for 80% of revenues. In the near term, however, headwinds in the form of client losses, a weaker new business pipeline in Europe, and subdued capital market activity will contribute to lower earnings.
Polynovo Ltd (ASX: PNV)
PolyNovo shares fell 25.9% last week to finish the week at $2.29 as half year results fell short of market expectations. The medical device company reported strong increases in sales and revenue, however these weren't sufficient to satiate the market, which had high expectations following the more than 300% rise in the PolyNovo share price over the past year.
PolyNovo reported a 129% increase in sales of NovoSorb BTM for the half year, compared to the prior corresponding period. The company said the rate of increase in sales is growing in existing markets and should grow further as new markets come to stream. Sales are expected to be lumpy as each market develops, however based on sales to date, PolyNovo expects FY20 NovoSorb BTM sales should comfortably double those of FY19.
Total revenue of $10.18 million was reported (2018 $5.67 million), including commercial sales of NovoSorb BTM of $8.57 million. R&D and new capital expenditure increased 92% to $3.22 million, while employee expenditure increased 86% to $6.69 million. A net loss for the period of $2.42 million was reported, up 26% from $1.92 million in the prior corresponding period. As at 31 December 2019, PolyNovo held $8.14 million in cash and short term investments.
