Analysts give latest earnings round a tick

Prashant Mehra
(Australian Associated Press)


The current corporate earnings season is shaping up to be a good one, with analysts pointing to a positive stream of results untainted by any major nasty surprises as evidence of future strength for Australian companies.

With more than three quarters of companies having reported earnings , analysts have termed the February corporate earnings season as ‘overall positive’.

Despite steady growth and increased shareholder payouts through dividends and capital returns, share price movements have been constrained compared to recent reporting seasons, reflecting the lack of surprises, analysts say.

Following years of patchy growth, there are positive signs in sales being revised upwards, but that has also been accompanied by increases in costs.

This means margins, for most companies, have remained flat or edged lower, according to Credit Suisse Australia equity strategist Hasan Tevfik.

“Top-line revisions have been strong, but costs have also surprised on the upside,” Mr Tevfik said in a note released on Monday.

“The increase in the cost base has been broad based.”

Citi’s head of equity strategy Tony Brennan says overall market earnings growth certainly hasn’t been stellar.

“Most companies have either reaffirmed guidance or upgraded it slightly, with fewer downgrading,” he said.

“Yet, earnings isn’t overly strong, and market net profit growth seems to be slowing to 4 per cent.”

Mr Brennan estimates only a quarter of companies outside resources are on track for a fall in earnings in the 2018 financial year.

But that also reveals weaker growth in some of the larger, more concentrated sectors such as banks, telecoms, insurers and supermarkets.

In sector terms, the building materials, engineering, food and beverages, and utilities classes have seen a solid lift in sales ahead of costs.

But competitive pressures and operating challenges have weighed heavily in discretionary and food retailing sectors as well as in telecoms.

Shareholders have had reason to celebrate, with Australian companies guiding to a total $500 million increase in dividends and up to $1.7 billion in buybacks by June 2018, according to Credit Suisse calculations.

Major contributors to this upsurge include BHP Billiton, which sharply boosted dividends, Crown announcing a larger-than-expected dividend after solid earnings, and a stronger capital position supporting IAG’s dividend increase.

“This underlines the strength of Australian balance sheets and fortunately robust cash-flows,” Mr Tevfik says in a report.

“The reporting period provides us with more confidence that the ASX 200 index will reach our target of 6500 by year-end.”

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