August Reporting Season

Each reporting season CommSec tracks all the company earnings results of S&P/ASX 200 companies to obtain a comprehensive picture of the aggregate health of Corporate Australia.

Overall, 137 of the ASX200 index group have reported full-year results for the 2019/20 year. A further 31 companies with a December 31 reporting date have also issued half-year or interim results.

Clearly for some companies it has been the toughest year in living memory. Other companies have done well, riding the wave of monetary and fiscal stimulus. In 2019 the focus was the US-China trade war and Brexit stalemate. In 2020 it has been the COVID-19 pandemic.

In these turbulent times, only 75% of companies reported statutory profits for the year to June. It is the weakest outcome in over the decade that we have been tracking interim and final reports with an end June or December financial year

Admittedly a number of companies have prospered in the period. Gold companies have ridden the back of strong demand and record prices for the precious metal (Newcrest Mining, Silver Lake Resource, and Saracen Mineral). Iron ore miners (BHP, Rio Tinto, Fortescue Metals) are riding high with the steel-making ingredient recently hitting 6½-year highs on the back of the strong Chinese industrial recovery and policy stimulus.

People have been locked down or have continued to work from home and they have been keen to buy goods that enable them to work efficiently at home and be comfortable. This has shown up in several months of strong retail trade data from the Bureau of Statistics. Many retailers – especially those with a good on-line presence – have reported higher sales and profits (Nick Scali, Adairs, and JB Hi-Fi). Woolworths doubled online capacity over the year and plans to expand it by another 30-50%.


Impact on Dividends

Aggregate full-year earnings fell by 38% causing companies to slash or abandon dividend payments and instead lift cash holdings to shore up stretched balance sheets. Just over 68% of companies issued a dividend and although aggregate dividends fell by 36%.

 

Market Reaction

In normal times, companies will provide guidance on future results. But clearly these aren’t normal times. During February and March, the majority of companies abandoned previous guidance; some raised extra capital; some cut recurrent and capital spending; and some did all three.

This earnings season, companies have again been understandably reluctant to provide guidance on future sales and profits. So, the best way to determine whether investors were encouraged or discouraged by a company’s profit result is to examine the share market reaction on the immediate days after the report was delivered.

Overall, 53% of ASX 200 companies that reported results saw a lift in share prices on the day of earnings release with an average gain of 0.7% and a gain of 0.8% after two days.

 

 

Investment Management - Outlook

We were anticipating the August Reporting season to be a catalyst of a share market re pricing that did not eventuate. The earnings announcements were poor however the share market just did not react. Equities remain ‘expensive’ in terms of valuation and hence we will continue taking a cautious approach in an overheated “momentum” driven market as the “fundamentals’ continue to paint a grim picture.

We now turn our eyes to the US election on the 3rd of November as the next potential repricing event with market volatility in clear display last week with daily movements of circa 2 - 3%.

Please do not hesitate to contact us if you have any questions.


Kind regards,

The Coastline Private Wealth Team.