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Fitch: Positive Scenario for Top Australian Corporates; 2015 Consensus off Target
May 15, 2017 / 11:15 PM / in 6 months

Fitch: Positive Scenario for Top Australian Corporates; 2015 Consensus off Target

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 100 Australian Listed Corporates: Credit Change Zones 2017 here SYDNEY, May 15 (Fitch) Seventy-seven of Australia's top-100 listed non-financial corporates (Fitch ASX100 portfolio) are in credit-positive zones where EBITDA growth is projected to exceed the increase in net debt over the financial years ending June 2016 to 2018 (FY16-FY18f), according to Fitch Ratings' latest report on 100 Australian Listed Corporates. The projections are based on Bloomberg consensus estimates (BEst). This is a large shift from the historical FY14-FY16 period, when only 49 companies were in credit-positive zones. However, previous BEst projections contained in our May 2015 report proved to be off target. Specifically, the 2015 BEst projections only placed 30% of the Fitch ASX100 portfolio in the credit-negative zones for FY16; but in reality, 55% ended up in credit-negative zones, including 14 companies in the "Red Pain Zone" of BEst-projected EBITDA decline and rising net debt. In the main, EBITDA forecasts proved to be overly optimistic. The current BEst projections forecast aggregate net debt/EBITDA leverage for the Fitch ASX100 portfolio over FY16-FY18f to fall by 0.7 turns, to 1.2x, more than reversing the 0.6 turn rise over FY14-FY16 to 1.9x. Once again, we believe this improvement is driven primarily by market expectations of higher EBITDA, given that the BEst-projected fall in aggregate capex is forecast to be more than offset by higher dividend payouts. Fitch believes the magnitude of the expected fall in leverage is again optimistic and that commodity prices, particularly iron ore, will play a large role in determining leverage to FY18, as the metals and mining sector represents 41% of the Fitch ASX100 Portfolio's aggregate EBITDA projection. Fitch has assigned public ratings to 12 companies in the Fitch ASX100 portfolio and expects nine of these companies to be in credit-positive change zones, similar to BEst's projections for the same companies. However, Fitch's estimates are generally more conservative than BEst; with Fitch, for example, taking a more conservative view on the extent of leverage improvement for BHP, Rio Tinto, Fortescue and Lendlease. For corporates in the metals and mining sector, Fitch's mid-cycle price expectations for key commodities, including iron ore, are lower than consensus and are driving the agency's more conservative view. The report includes Venn diagrams illustrating overlapping areas of our top-10 lists based on BEst projections. BHP, Rio Tinto, Newcrest, Fortescue, Wesfarmers, Origin and South32 are in the top-10 "Blue Joy Zone" of BEst-projected higher EBITDA and debt paydown over FY16-FY18f. Conversely, Flight Centre and AusNet are in the top-10 "Red Pain Zone". The report also contains scatter charts illustrating the credit zone of each company in both projected and historical periods as well as explanatory notes and rating sensitivities for the 12 Fitch-rated Australian corporates in the Fitch ASX100 portfolio. Contact: Matt Jamieson Head of APAC Research Corporate Ratings Group Senior Director +61 2 8256 0366 Fitch Ratings Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Australia Vicky Melbourne Senior Director +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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