Buffett Test 1 may be found in post 1806. Not enough has changed year to year to warrant me rewriting it. So we are straight into Buffett Test 2.
eps = (Normalised Earnings) / (Total Shares on Issue, EOFY)
FY2018: |
($365m - 0.72($10m) )/ |
1835m |
= 19.5cps |
FY2019: |
($409m - 0.72($15m) )/ |
1836m |
= 21.7cps |
FY2020: |
($427m - 0.72($35m-$2m) - $10m -$7m)/ |
1837m |
= 21.0cps |
FY2021: |
($384m - 0.72($28m - $16m) ) / |
1867m |
= 20.1cps |
FY2022: |
($410m - 0.72($26m) ) / |
1872m |
= 20.9cps |
Notes
1/ Figures for FY2018 are derived from the re-reported profit figures as presented in the December 4th 2018 Analysts Briefing, titled 'Updates to External Reporting'. These updates alter the financial reporting for the FY2018 year as though the subsequently applied new accounting standards NZ IFRS15 (on apportioning revenues and costs) and NZ IFRS16 (on the balance sheet representation of leases) were already in force over FY2018. Doing this means that all calculated results are compared under the same set of accounting standards.
2/ For FY2018, I have removed the $10m of profit resulting from a 50% sale of formerly 100% owned subsidiary 'Connect 8 Limited' (an infrastructure civil construction business).
3/ For FY2019 I have removed from profit $2m from the sale of a long term investment/business, $11m from the sale of Property Plant and Equipment and $2m from a gain on lease modifications and terminations, making a grand total of $15m to be adjusted for.
4/ For FY2020 I have removed $35m of 'other gains' (that includes $5m from the sale of a long term investment or former subsidiary, $28m from the sale of Property Plant and Equipment and $2m from a gain on lease modifications and terminations). I have offset this with $2m of rent concessions that would not have been granted outside of a Covid-19 environment. Furthermore I have removed a one off $10m downward adjustment to the tax bill that was a result of a law change reinstating the depreciation allowance on commercial buildings. Finally I have brought in a retrospective adjustment of $7m from FY2021. This adjustment relates to "reflect a reduction in net earnings of $7 million for the amortisation of reacquired rights that were previously regarded as indefinite life and therefore not amortised."
5/ For FY2021 I have removed $28m of 'other gains' (that includes $1m from the sale of a minority shareholding in long term investment 'Now New Zealand' (a boutique broadband retailer), $9m from the sale of Property Plant and Equipment (primarily mobile plant and equipment) and $18m from a gain on lease modifications and terminations). I have offset this against a one off refund of $16m of historic wire and maintenance charges that was charged to some fibre broadband customers.
6/ For FY2022 I have removed $26m of 'other gains' (that includes $10m from the sale of Property Plant and Equipment (primarily mobile plant and equipment) and $16m from a gain on lease modifications and terminations)
Conclusion: Average normalised earnings over the past five years was 20.6cps (the same as FY2021). The high of 21.7cps was 5% higher than average and the low of 19.5cps was 5% less than the average. This is just about as flat as corporate earnings get in the real world. Next a review on input costs.
Financial Year |
Labour Expense |
Finance Expense |
2018 |
$513m |
$77m |
2019 |
$475m |
$85m |
2020 |
$511m |
$94m |
2021 |
$491m |
$81m |
2022 |
$495m |
$74m |
The table above shows labour expenses have been held down, and interest costs are at cyclical lows. But I would expect upward pressure on both these cost staples as we look to FY2023. Growth initiative research (post 1982) does not give any hint of a significant boost in top line revenue going forwards. Nevertheless mobile service revenue growth continues to exceed expectations, which largely covers the 'new class' growth initiatives and cloud services not performing to expectations
Looking at the trend in the last five years of earnings, as used in the 'Buffett Model', is meant to be the indicator of whether a company is able to continue positive 'eps' growth into the future. The spreadsheet part of the Buffett valuation model does not work unless this is the case. But it is clear there is no clear historical pattern of increasing earnings per share here.
Conclusion: Fail test.