The reporting season for revealing the annual results of ASX listed companies isn’t going well for many.
August has been a tough market with the ASX losing about 6% in value so far this month.
This has meant brutal selling down of companies which just meet expectations when they announce their annual results. Investors are looking for something better to justify current prices.
Seek is a good example. The pioneering online job classified company keeps producing record results but the moment it forecast a net profit increase of just 5%, investors started selling. Today Seek dropped 11% in value.
Another company sold down was Dick Smith. It lost 16% to $1.67 on Tuesday after announcing a success in terms of growth of stores and building top line revenue.
The company posted increased sales and profit, and an underlying result within expectations. But same-store sales – an indicator of growth when you take out the impact of investment in new locations – were weaker than expected.
About 30% of companies, representing about 45% of the market capitalisation, have reported so far this season.
“The picture isn’t great so far,” writes Deutsche Bank strategist Tim Baker and associate Joseph Kim in a note to clients.
“The beat/miss ratio for the June half is fine (52%, in-line with the 4-year average), but the changes to forecasts are concerning.”
Deutsche Bank analysts have cut profit forecasts for 66% of companies, compared to the four-year average of 57%, as this chart shows:
Net profit forecasts for industrial companies have been cut by 2% to 3%.
“The market seems to agree that results have been tough, reflected in Australia underperforming global peers in August (by 6%),” Deutsche Bank says. “Still, things could change as the bulk of companies report.”