The 2016/17 company reporting season finished up last week, with commentators clearly underwhelmed by the “modest” results.
According to CommSec, it was a solid reporting season, with around 90 per cent of ASX 200 companies reporting full-year earnings making a profit – above the long-term average of 87 per cent.
CommSec said that around 60 per cent reported earnings growth, with average revenue up 6.4 per cent and profit growth of 67 per cent year-on-year.
Ninety-one per cent of ASX 200 companies reporting elected to pay a dividend. Two-thirds of those companies (69 per cent) increased their dividends). Cash levels were up 23.5 per cent to $108 billion.
Sectors that performed well included mining and energy, where companies benefited from cost-cutting and better commodity prices; packaged foods and meats, where demand was strong; housing related businesses; and real estate investment trusts.
Sectors that did not do so well were media and consumer goods.
A number of companies took advantage of strong earnings and balance sheets to write down assets. Spotless, Nine Entertainment, Vocus, Evolution Mining and Wesfarmers were among them.
UBS said that results came in on the disappointing side of expectations. Resources was been the standout sector on the positive side. Insurance and telecommunications were the weakest sectors.
UBS highlighted the fact that only 15 per cent of large caps beat its forecasts – down from 25 per cent at the half-year reporting period. Expectations for 2017/18 have been revised downward, with the average earnings revision down by 1.7 per cent.
“Profit conditions do not look as buoyant as suggested by recent upbeat business surveys,” UBS said.
A number of stocks with premium ratings have disappointed. They include Domino’s Pizza, REA Group, CSL, Seek, James Hardie Industries and Resmed.
Others that disappointed included Crown, Healthscope, Magellan Financial Services, Suncorp and Telstra.
Companies whose results were better than expected include Bendigo & Adelaide bank, CIMIC Group, IOOF, Janus Henderson Group, JB Hi-Fi, Origin Energy,
AMP Capital also said earnings reports did not reflect the generally good economic conditions.
“More than 70 per cent of companies reported higher profits then in the previous year but this growth was only a modest 5 or 6 per cent, if you exclude the 130 per cent bounce in profits from resources companies, and half that again if you exclude banking stocks,” the investment house said.
Recent business conditions data from National Australia Bank shows that confidence in July was at its highest level since 2008. “Such data often coincides with earnings upgrades but not this season,” says AMP Capital senior portfolio manager Phillip Hudak.
“Small caps outperformed their large cap counterparts, due largely to avoiding many of the headwinds facing large caps, notably the banks, insurers and the telco sector.”