Investors have stopped talking about where the risks are hidden and have started looking for opportunities.
The Australian market is having its best reporting season for at least four years, with companies consistently beating profit expectations.
The local equities markets is buoyant with the ASX200 up this month and outperforming global equities by 2%.
The results point to a strong outlook for the rest of the financial year.
With more than three-quarters of ASX companies already reporting their results, here’s some key takeways from Deutsche Bank (DB) strategist Tim Baker:
- 58% of companies have beaten DB’s expectations for December half year earnings (compared to a three year average of 52%). This is more impressive when you consider that analysts didn’t downgrade earnings forecasts coming closer to the results. This means there was a higher hurdle to beat expectations.
- DB analysts have upgraded earnings forecasts for just under half of these companies
- Companies are showing the best earnings growth for three years and are 3% above DB expectations. Overall, company net profits are up about 12 per cent.
- Resources are the clear stand-out, lead by BHP and Rio Tinto. Banks results are also firm.
- Industrials. If Qantas and insurance giant QBE are excluded from this sector, industrials also returned 12%.
- Cost cutting. EBIT (Earnings Before Interest and Tax) margins have been impressive with industrials trending higher and resources companies benefiting from cost cutting programs.
- No surprise in dividends. The pay-out ratio has risen to an above average level but balance sheets are lightly geared. Baker says companies may be looking to grow through acquisitions or fund internal projects instead of returning cash to shareholders.
- There are signs of improving revenues, particularly for companies connected to housing. Boral and Bluescope Steel stand out.
- Resources exposed companies such as contractors and logistic operators are having a difficult time with earnings falling 2%.
- Companies with offshore exposure have grown earnings by around 25%, aided by a lower dollar. These include Amcor, Ansell, Billabong, Fox.
This chart shows the Deutsche Bank take on results, witgh an increasing number of companies beating expectations and more having their forecast earnings updgraded:
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