CONTRIBUTORS
Reece Birtles
Portfolio Manager, Martin Currie
As of 20 August, 45% by number and 68% by market cap of Australian stocks have reported their full year results for August 2021 company reporting season1.
Results and revisions coming in above expectations2
As per our predictions in our reporting season lead-in blog, reported results versus consensus expectations have been very strong, with 44% of companies beating the street on earnings per share (EPS), with just 27% surprising on the downside.
These results, combined with better (than we feared) company outlooks, have produced strong forward earnings upgrades for sales, earnings, and dividends.
And if there is one thing that zero interest rates and governments showering cash can produce, it is strong cashflow results for businesses and lower debt!
Cashflow story driver of two big reporting season themes
With cash to splash, we are seeing a significant number of capital management and merger and acquisitions announcements.
As we discussed prior to the season in the blog, wind in the sails for Australian dividends and capital management opportunities, capital Management activities are occurring across the range of increased dividends, special dividends, on-market buybacks, off market buybacks. Results that portrayed this theme include Suncorp, Commonwealth Bank of Australia, BlueScope Steel, BHP Group, and Telstra.
Stocks undertaking M&A during this period include
- Square/AfterPay buy out,
- Santos/Oil Search merger,
- Woodside Petroleum/purchase of BHP’s oil & gas assets,
- Transurban Group/WestConnex auction of remaining 49% (pending in September),
- Bendigo Bank/purchase of fintech Ferocia,
- Superannuation funds/bid for Spark Infrastructure,
- Steadfast Group/purchase of Coverforce,
- National Australia Bank/purchase of Citi’s Australian credit card /mortgage/deposit business.
The losers and winners so far
Only two sectors have received negative revisions from the market post results. The miners forward earnings expectations fell on the back of iron ore and cost inflation, while utilities have been downgraded on weak electricity price pass through to FY22.
In terms of price reaction, in the two days after companies have reported their EPS results, winners have been well rewarded whilst misses haven't been punished.
Other thematics to keep a watch on3
The best overall results in terms of the stock price movement since reporting (‘alpha season’) and our ‘Reporting Score’ metric, which combines Surprise, Revisions, Price Reaction, have come from the P&C insurers such as QBE Insurance Group and Suncorp. The insurers are inextricably linked to the recovery theme4.
On the flip side, the worst results have come from the Utilities/Energy (AGL Energy, Beach Energy, Origin Energy etc.) and Miners (BHP, Mineral Resources etc.) on lower commodity prices.
Other key themes that are emerging from the results include Paris Net Zero alignment, cost inflation (in particular, resources), the resilience of the consumer, and how companies are positioning themselves for the COVID-normal recovery.
In terms of the current lockdown conditions across 60% of the Australian population, in the discussions we have had with company management so far, they have described how resilient the economy is and how quickly earnings have recovered after each lock-down. Things appear to have remained surprisingly sound through this lockdown to date, but when pushed, most then say they don't know what happens next if this keeps going… The vaccine rollout remains an important hinge-pin for future results.
As the reporting season continues to unfold, our analysts will have conducted over 100 meetings with management teams of Australian corporates.
In late September, we will publish our usual semi-annual Reporting Season Wrap, which will bring together our full statistical framework, and key fundamental views and insights from company engagement on these themes, and our outlook for a COVID-normal Australian market.
ENDNOTES
- Source: Martin Currie Australia, FactSet; as of 20 August 2021. Data for the S&P/ASX 200 Index.
- Surprise: where there is a >+/-2% difference between company reported results and broker consensus forecasts. Follow on Revisions: the average change in broker consensus next 12-month (NTM) forecasts after companies have reported their results.
- The information provided should not be considered a recommendation to purchase or sell any particular strategy/ fund/security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
- Alpha season: stock price movement since companies have reported their results. Reporting Score: average across: Surprise, Revisions, Price Reaction.
IMPORTANT INFORMATION
Past performance is not a guide to future returns.
The information provided should not be considered a recommendation to purchase or sell any particular strategy/ fund/security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
This publication is issued for information purposes only and does not constitute investment or financial product advice. It expresses no views as to the suitability of the services or other matters described in this document as to the individual circumstances, objectives, financial situation, or needs of any recipient. You should assess whether the information is appropriate for you and consider obtaining independent taxation, legal, financial or other professional advice before making an investment decision.
Issued by Franklin Templeton Investments Australia Limited (ABN 87 006 972 247, AFSL 225328) or Franklin Templeton Australia Limited (ABN 76 004 835 849, AFSL 240827).