The annual profit reporting season of ASX-listed companies starts this week with earnings boosted by gains from resources companies benefiting from a surge in commodity prices.
The first companies to report in August for the 2017 financial year include gaming business Crown Resorts, insurance and banking corporation Suncorp and mining services group Downer EDI.
Shane Oliver, head of investment strategy and chief economist at AMP Capital, says 2016-17 profits for the market as a whole are likely to have increased by around 18%, driven by a 135% gain in resources profits.
Profit growth for the rest of the market is likely to be around 5.5% led by retailers, utilities, healthcare stocks and financials.
“As always in a low interest rate world dividends will be a key focus,” he says.
Deutsche Bank expects earnings growth to be robust at a little under 15%.
Analysts at Deutsche see potential upside for the reporting season for Boral, Harvey Norman, Isentia, Star, Suncorp and Worley Parsons.
Those with potential downside include ASX, Crown, Greencross and Wesfarmers.
Here’s the full Deutsche Bank list:
“We expect a soft tone around consumer-exposed companies,” write Tim Baker and David Jennings in a note to clients.
“Retail sales have been weak, and the underperformance of Small Industrials earnings revisions is telling (small companies being more exposed to the domestic cycle).
“The construction side is likely to be firmer — housing conditions are still solid and the infrastructure pipeline is picking up.”
Companies have been steadily increasing their earnings forecasts over the last 12 months, as this chart shows:
Analysis by Citi shows that company earnings forecasts have only moderated slightly despite concerns in recent months, including housing, the impending arrival in Australia of Amazon, bank levies and commodity prices, that have caused the ASX to trend lower.
“The usual confession season preceding results was relatively mild, with downgrades mostly limited to consumer stocks,” write analysts Tony Brennan and Mark Tomlins at Citi.
“This seems to partly reflect the fact that surveyed business conditions have been at their strongest levels since the GFC for most of the past year, and reasonably buoyant in an absolute sense.”
The June quarter Deloitte Access Economics Investment Monitor says the surge in company profits is the big story of the economy over the past year as investment in resource projects winds down.
Deloitte Access Economics partner Stephen Smith says company profits, before income tax, rose by almost one third over the year to March.
This was mainly driven by mining profits, which jumped 112%, after higher commodity prices in late 2016 and early this year flowed through to earnings.