February 2021 Reporting Season
Australian companies listed on the stock exchange report their earnings, i.e., whether they have made a profit or a loss, twice a year in February and August. This reporting season is going to be a very important in relation to whether company earnings validate current share prices, which at present appear to be overvalued.
There has been a lot of optimism factored into the earnings recovery however by just how much is the key question. Many analysts believe that Earnings per Share (EPS) needs to increase by at least 25% - 30% to justify current share price valuations.
But it's not as simple as profit = share price up, loss = share price down.
Share prices tend to more closely reflect how the company performed compared to expectations - did it miss or beat its own forecasts, or those of analysts who closely watch it?
Other factors that influence share price movements are what the management is projecting about the six months ahead, usually referred to as guidance or an outlook statement, and whether it pays a dividend, and how much that is.
Click here to see a list of more than 120 companies that will be releasing results during the February Reporting season.
Interestingly American companies also report their December quarterly earnings in February. Latest US job losses surged to 227,000 during last month (even steeper than the 140,000 that the US previously reported). US President Joe Biden has argued that the bleak job figures highlight the urgent need for his proposed $US1.9 trillion stimulus package to be passed. The prospect of more cash being pumped into the economy boosted Wall Street to record highs.
Reporting Season Preview: The impacts of COVID-19
This February reporting season will reveal results for the first half of the 2020-21 financial year, so July through December last year. If you think back to that not-so-long ago time, there was a lot happening:
- COVID-19 restrictions began to ease, before Melbourne was struck by a second wave of the virus.
- JobKeeper was extended but at a lower rate, as was the JobSeeker supplement.
- The trade war with China ratcheted up a notch, with more industries hit with tariffs or import restrictions.
- US voters went to the polls and elected Joe Biden.
- Iron ore prices were on a tear and the Aussie dollar steadily rose… to name a few things.
All of this will have affected Australian companies in different ways, depending on what industries they operate in, their exposure to overseas markets and their existing financial position.
Tourism-exposed businesses, such as airlines, travel agencies, accommodation and entertainment companies are expected to have remained under pressure over the six-month period.
Commodities such as iron ore is at a 9-year high, which is good news for mining companies — and could mean big dividends for shareholders.
Retailers that cater for electronics and home office needs are also likely to have benefitted from the continuation of working from home during the period.
With low interest rates lending is increasing however at lower margins and less people are now deferring repayments.
Energy plunged circa 30% in 2020. Oil process jumped about 50% but late in the year, i.e November and December.
Healthcare will be mixed – there has been an increase in protective gear, gloves, masks, respirators which should favour the likes of Ansell, Resmed and Fisher and Paykel. Cohlear and Ramsay Health on the other hand may struggle as many elective surgeries were cancelled. CSL will also face headwinds with plasma shortages from US and the cessation of their Co-vid 19 vaccine.
One thing not to expect, though, is concrete guidance for the year ahead — after being burned by a year that defied all forecasts, some analysts think companies are unlikely to make bold projections with any certainty.
Please do not hesitate to contact us if you have any questions.
Kind regards,
The Coastline Private Wealth Team.
