on track

Two good announcements from FSA last week.

To put their profit upgrade into perspective, you need to dissect last financial years result. Overall the net profit attributed to members last year was 10.759M. The first half was 4.319M and the second half was therefore 6.440M.

Their latest full year profit upgrade is an 18% increase in profit after tax which will take profits to 12.695M for the financial year if the high end of the range is achieved.

If there is actually a 38% increase in first half profits as potentially flagged, we are looking at approximately 5.960M for the first half. To obtain 18% growth over the full year, we need approximately 6.735M in the second half. This equates to less than a 5% increase on last year’s second half profits of 6.440M. With good trading conditions being experienced, you would think that 5% sounds achievable. The hard work has already been done, especially with the likely additional expenses associated in getting ready for the personal loan product trial already being expensed in the first half.

What I like about the personal loan trial is that they have convinced Westpac to lend them 10M to carry out the trial. By being able to borrow the money, it frees up the company to continue to pay out higher dividends.

The original guidance at the AGM was between 8 and 13% with a likely dividend of between 5.25 cents and 6 cents. Given the upgrade in profits, I think the yearly dividend will be certainly higher than 6 cents.

I note that the reserve bank is talking about room to move interest rates further down. If rates drop further, I believe this will only drive high yielding stocks higher.

Last week was a good news week indeed. You don’t need to be a clairvoyant to know which way this share price is going in the long term. Seek your own physic.