Market forecasts were adjusted
leading into the August reporting period. Overall, market earnings delivered
broadly in line with revised expectations of -1.0% for the financial year to
June 2013.
The reporting season results were
in line with our expectations with 70% of companies either meeting or exceeding
consensus earnings. Not surprisingly, earnings surprises were more prevalent in
the Industrials sectors given the low expectations, whilst Resources
disappointed versus expectations with good gains on cost management offset by
weaker commodity prices.
The one strong feature of this
reporting season was the strength of the dividends which have increased across
general insurance, rail transport and parts of the resources sector. 79% of
companies either met or exceeded dividend payment expectations for this
reporting period. An increase in payout ratios was a key influence.
Generally, company guidance
remained quite cautious given the tough domestic economic environment. There
were some who were hopeful that the Federal election would deliver a majority
government and consequently a boost to both consumer and business confidence.
Companies that issued increasingly cautious commentary in conjunction with
downgraded earnings forecasts saw some negative trading outcomes – with stocks
such as Bluescope and Brambles falling 9.5% and 7.2% on their respective result
days.
The other key trends emerging out of
reporting season included:
- Materially lower cost bases as management focus intensified in a low sales growth environment. This was particularly evident in the Resources sector – but remained a feature across virtually all industries.
- The weaker $A cross rate with most currencies was highlighted as beneficial to the outlook for trade exposed companies and those with significant offshore earnings bases. Companies with an Australian domiciled cost base also stand to benefit significantly versus offshore competitors.
- Balance Sheet strength / cashflows generally continued to improve, debt has been reduced and or termed out at attractive rates. This provides an interesting platform for corporate activity over the next 12 months.
With this reporting season behind us - and
from this point forward - the market will begin to focus on 2014 FY earnings.
As seen below, the market earnings forecast for the FY14 has increased
marginally post results. This reflects the Resources sector re-basing earnings
and the market expecting to see an improvement from this point, driven by the
Diversified Metals & Miners
Indices:
The
Australian All Ordinaries Index has moved up increasing by +0.5%
since closing last Friday to 01:30 pm today.
The
rest of the world as measured by the MSCI index decreased -0.2%
in A$ from closing last Friday to end of trade Thursday.
Have
a great weekend,
The team at IPS
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