Don't get me wrong; I'm a huge fan of this company and have been a shareholder for so long that I can't afford to sell it because of the capital gains tax smack I would receive. So, I'm kind of stuck as a shareholder (well, until I reach pension age, at least).
I spent some time this morning looking at the error of my ways, and I discovered a few things that I missed, in the fog of war, yesterday:
1. First, on the Revenue side:
What spooked me during my initial take on the result was the flat Revenue outcome in the second-half, in A$ terms. But then I went to the trouble of decomposing the constant currency numbers, and found that, in constant currency (CC) terms, Revenue growth for the Total Group in the second-half (refer shaded area in the table below) was 4.3%, which at face value, is not that stellar, but at least it is not zero.
Divisionally, CC revenue growth in H2 for North America was 6.6% (c.f., 22.7% in H1), for Australia/New Zealand was 8.9% (H1: 9.3%) and Rest of World was negative5.7%. (H1: 29.5%)
But what I missed was that the reason that CC growth for Rest of World was negative in H2 was because they had suspended third-part sales ahead of a launch of their Sage brand in Germany and Austria, which are two not-insignificant country markets.
And there's more: I went back to the FY2017 result to see what kind of growth they were cycling in JH2018 (i.e., compared to JH2017's growth). The results are shown below:
As can be seen, H2 of FY2017 represented a very strong growth period, of 16% on pcp.
In other words, for JH2018: Even despite having Rest of World go backwards for very specific reason, and despite JH2018 cycling a very strong comp, CC Revenue still increased by 4.3%.
When I first saw the result come out, I thought second-half Revenues were soft.
Having now drilled down deeper, I take it all back: Revenue performance in the second-half was actually quite credible.
2. Next, to Operating Margins:
The EBIT result in the looked a bit soft to me, being up just 6% on pcp (after 12% rise in the first-half).
But then I saw the following little table in the notes to the accounts, which shows that R&D expenses rose by a whopping 43%:
Now, I can't recall seeing an equivalent table provided with the first half results, so I'm not sure of the extent to which that acceleration in R&D investment fell into the second-half vs the first half. But I can't recall such a share step-up in the first half, so I'm assuming it was second-half skewed.
It looks as if they tried very hard to keep EBIT growth to just 10% because, if they wanted, they could have easily reported 12%, or even 15%, EBIT growth.
So the upshot of my second - and more proper - take of the result is that I should retract my earlier "it's a 6 out of 10 result" comment, because I now see that it is another very good result from BRG, with the usual conservativeness and P&L padding/buffering.
Apologies for the bum steer.
.
BRG Price at posting:
$12.89 Sentiment: Hold Disclosure: Held
(20min delay)
