Feature Stories | Sep 20 2016
Download related file: FNArena-Reporting-Season-Monitor-08-16
This article was first published on September 5 for subscribers but is now open for general readership.
With the August result season now complete in 2016, 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 321 major listed companies. By FNArena’s assessment, 104 companies beat expectations and 76 missed expectations, for a percentage ratio of 1.4 beats to misses. The simple average of all resultant target price changes came in at a net 3.7% gain. In response to results, brokers made 56 ratings upgrades and 90 ratings downgrades.
The month of August saw the ASX200 fall to 5433 from 5562. However, the bulk of that fall occurred in the last few days, following a very benign period in which the index moved very little each day. That does not mean that on any given day there weren’t some very sharp moves up or down in individual share prices of reporting companies.
Some of the bigger share price moves to the downside were reserved for companies that had run hard into the result season on popular growth stories. Many had been “priced for perfection” and as such saw big drops in only the slightest of disappointments or even because the results did not “beat”. Many of these stocks had already been called overvalued by brokers.
Some of the bigger share price moves to the upside were reserved for companies that have had bad years or even longer difficult periods but were beginning to show signs of recovery. Many of these had been abandoned by investors and in some cases, shorted by hedge funds.
In between were a few individuals – resource sector service companies for example – that were sold down after disappointing investors who had been caught in the “value trap” of assuming a recovery was underway (thanks to commodity price bounces in the case of service companies), but were wrong.
A beat/miss percentage result of 32/23 is pretty standard stuff. The fact ratings downgrades exceeded upgrades by a margin reflects broker warnings heading into the season many stocks had become overvalued, particularly among yield payers and popular growth stocks in an environment in which growth has been hard to find.
Six months ago the ASX200 was stuck around the 5000 mark and at that time valuations were considered relatively fair, such that the February result season saw an match of 70/70 upgrades to downgrades. A year ago the index spent the month of August tumbling by 8.6% on macro issues having once again shown previous signs of recovery. This provided the trigger for 116 upgrades to 40 downgrades and was more reflective of investor panic rather than actual results.
The sell-off seen late in this August result season, after a benign earlier three weeks, was all about the Fed and the ever present fear of a US rate hike, which underscores the sensitivity of the yield story. Australian yield stocks are carrying elevated PE ratios because there is simply nowhere else for longer term investors to put their money.
At at the end of the day, global markets are probably even more under the spell now of central bank policy today than at any other time in the post-GFC era. Nothing much else matters on the macro front. On the micro front, this August result season helped underscore the story of the past couple of years in the Australian market: If you stick stoically to big name companies that have been around forever then you are missing out. Those following new growth themes in a modern world are winning.
[Note: This final table includes an assessment for late reporter Huon Aquaculture ((HUO)).]
For further information on the relevance of this information, please see the Guide below.
New to this season's Monitor is a "Brokers Covering" column indicating how many of the FNArena database brokers cover each stock, ranging from one to eight. For easier appreciation, broker ratings Buy, Outperform, Overweight and Add are all collated as "Buy", Hold, Neutral and Equal-weight as "Hold", and Sell, Underperform, Underweight and Reduce as "Sell".
New to this season's Monitor is database broker Ord Minnett. Ords uses a five tier rating scale, as opposed to the standard three, of Buy, Accumulate, Hold, Lighten and Sell. To maintain consistency the Monitor will classify both Buy and Accumulate as "Buy" and Lighten and Sell as "Sell". However intra-tier up/downgrades will be noted.
To access the spreadsheet simply click on the attached document.
Guide:
Each day of the Australian six-monthly reporting season, FNArena provides a summary of broker responses to the previous day's profit result releases from companies under coverage. Readers are reminded that it matters not what actual profit/loss result is posted by each company but by how much that result exceeded/fell short of stock analysts' consensus forecasts. Stock price movements on the day of release, and in many cases for the months following the release, will often be determined by the extent of "beats" and "misses" of underlying earnings as well as company guidance and analyst/management outlook.
A rolling summary table (Excel) is attached to each day's report and will build as the season progresses. Additions are made each day, consistent with release dates, and stocks will then be listed in alphabetical order for ease of use until the full picture of the reporting season emerges.
Note that companies assessed include only those covered by the eight major stockbrokers in the FNArena database and that ratings changes and targets are those provided only by the database brokers.
Note also that "beat" and "miss" assessments are open to an element of subjectivity and not simply a result-versus-consensus-forecast comparison. Mitigating factors include one-off items, top line versus bottom line relevance, forward guidance as an important consideration and so forth. In many cases "profit" per se is not the most relevant performance indicator.
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”.
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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