ASX-listed companies are on track to report average growth in earnings of around 7 per cent in the 2017/18 financial year, according to investment bank UBS.
UBS equity strategist David Cassidy says this would be “a respectable, slightly above trend” outcome.
However, the local corporate growth outlook looks “somewhat pedestrian” when compared with the rest of the world, which is expected to be up 10 per cent for calendar year 2018.
Cassidy says earnings upgrade momentum is “very resource sector-centric”. Excluding resources, Australian earnings growth will be closer to 5.8 per cent, with the banking sector a drag.
Banking sector earnings are expected to grow by only 2.7 per cent in 2017/18.
The strongest sector growth rates are expected for utilities, health care, general industrials and other financial.
Cassidy says that at 15.5 times, the Australian market’s price-earnings multiple does not appear particularly expensive (the 20-year average is 14.8 times).
“However, the high-growth areas of the market (healthcare for example), are trading well above their long-term multiples,” he says.
Companies exposed to government infrastructure and housing construction should report improving conditions and an improving forward order book.
Gaming industry results should be “relatively solid”.
Retail conditions are likely to be very mixed, with household goods and electronics the key areas of strength, while department stores and apparel are likely to show tough conditions.
The media sector is expected to report a 3.3 per cent increase in earnings per share.
Among the large caps, upside surprises may come from Ansell, Computershare, Harvey Norman, Janus Henderson Group, JB Hi-Fi, Qantas, Seek, Star Entertainment and Woolworths.
UBS has ‘Buy’ recommendations on Harvey Norman, Janus Henderson, Qantas, Star and Woolworths.
Companies that may disappoint market expectations include Lend Lease, Primary Healthcare and Ramsay Healthcare.
Among the small caps, upside surprises may come from engineering software developer Altium, waste management company Bingo Industries, Cleanaway Waste Management, The Reject Shop and Webjet.
UBS has ‘Buy’ recommendations on Bingo Industries, Cleanaway and Webjet.
Small companies that may disappoint include APN Outdoor Group, Ardent Leisure Group, Cabcharge Australia and Retail Food Group.