Feature Stories | Sep 17 2015
Download related file: FNArena-Reporting-Season-Monitor-08-15
This article was first published for subscribers on September 3 and is now open for general readership.
With the August result season now complete in 2015, the FNArena Result Season Monitor, which has been building throughout the month, is now complete and published here in its final form (see attached Excel file).
The table contains ratings and consensus target price changes along with brief summaries of the collective responses from FNArena database brokers for each individual corporate result, and an assessment of “beats” and “misses”. Australian corporate results tend to focus on the profit line, with all its inherent potential for accounting vagaries, tax changes, asset write-downs and other “one-off” impacts. FNArena has focused mostly on underlying earnings results (more in line with Wall Street practice) as a more valuable indicator of whether or not a company has outperformed or underperformed broker expectations. There is also a level of “quality” assessment here rather than simple blind “quantity”.
The Monitor summarises results from 315 major listed companies. By FNArena’s assessment, 94 companies beat expectations and 64 missed expectations, for a percentage ratio of 30/20 or 1.5 beats to misses. The simple average of all resultant target price changes came in at a net 1.25% gain. In response to results, brokers made 116 ratings upgrades and 40 ratings downgrades, or a ratio of 3 to 1 upgrades to downgrades.
To put that into perspective, the previous February reporting season featured a ratio of 1.1 beats to misses for a 5.6% target price gain, and a ratio of 3 to 1 downgrades to upgrades (ie, the other way around).
A year ago, the August 2014 reporting season featured 1.1 beats to misses for a 2.1% target price gain. The ratio of downgrades to upgrades was 1.6 to 1.
When last year’s August season began the ASX200 was at 5600. At that time, stock analysts had decided the driving force of domestic and global thirst for yield had rendered many stocks overvalued, hence ratings downgrades outpaced upgrades by 1.6 to 1. When this year’s February season began, the ASX200 was again at 5600 following an interim period of volatility. But as the month progressed, the index rallied 6%.
The “overvaluation” call thus became more emphatic, hence downgrades outpaced upgrades by 3 to 1, or about twice the level of the previous August.
With a bit of help from China, this year’s August result season began with the index back down at 5600 yet again. By rights, stock analysts should still have been calling “overvaluation” as they did one year earlier when the index was at 5600, but they haven’t. Over the past six months analysts have come to accept that low global interest rates suggest yield stocks deserve a premium, and hence the market PE should be higher as a result.
So as the result season began to play out, upgrades began outpacing downgrades from the word go. This time “undervaluation”, or more accurately “oversold”, calls emerged. And then China devalued its currency, all hell broke loose, and the ASX200 traded under 5000 before bouncing slightly to month’s end. Anything that was “oversold” at the beginning of August hence became even more oversold at the end, on stock analyst valuations, thus the big swing around to upgrades significantly outpacing downgrades.
[Note: This final table includes assessments for late reporters Freedom Foods Group ((FNP)), Tap Oil ((TAP)) and The PAS Group ((PGR))]
Disclaimer:
While FNArena's Reporting Season Monitor is being compiled with great care and our best endeavours, investors should note that we cannot guarantee that all data and information gathered and on display is 100% accurate at all times. FNArena does not accept any responsibility for errors and omissions that can occur. Investors should always do their own research and consult with a financial expert before making investment decisions. FNArena's Reporting Season Monitor is an informative tool, it does not not contain investment advice and should not be treated as such.
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