February Result Season 2024: The Wrap

Feature Stories | Mar 12 2024

The February result season was a largely an average affair, assisted by underlying positive sentiment.

-Beats/misses pretty average
-Cost control a factor
-Margins in good shape
-Central bank policy in focus

By Greg Peel

With the February results season now complete in 2024, the FNArena Corporate Result Monitor, which had been building throughout the month, is now complete and published in its final form (see attachment).

Guide

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 387 listed companies. By FNArena’s assessment, 127 companies beat expectations and 108 missed expectations, for a percentage ratio of 33/28% or 1.2 beats to misses. The aggregate of all resultant target price changes came in at a net 3.5% increase. In response to results, brokers made 44 ratings upgrades and 51 ratings downgrades.

The first FNArena Corporate Result Monitor was published in the August season of 2013. The years 2013-18 have now been averaged out as one block, lest the table become too long and cumbersome, leaving the past five years individually listed. See table:

Looking Back

Before we assess the February result season it would pay to look back at where we were after last August’s season.

The March quarter CPI had come in at 7.0% and the June quarter at 6.0%. Hence, by the August season we had seen the early signs of inflation receding. But it was still too high for the RBA, which in June lifted its cash rate to 4.10% from 3.85%.

The RBA then paused, and at the end of the August result season the cash rate was still 4.10%. But the board was still sending hawkish signals.

The big question last season was thus where will the cash rate peak? That would impact on corporate financing costs ahead, as well as consumer demand. And how far down could inflation come? That would impact on corporate input/labour costs.

The September quarter CPI printed 5.4% and just recently, December came in at 4.1%. The RBA decided to lift its cash rate to 4.35% in November, where it has since remained.

Taking some lead from the US, which one must inevitably always do, when the Fed started raising rates in 2022 all and sundry believed the US would enter recession by late that year. As that didn’t eventuate, expectations moved to 2023.

Still it didn’t happen. By late 2023 there were still those hanging on to the assumption a recession must occur, perhaps in the first half of 2024. Others were beginning to believe a mythical “soft landing” might actually be achieved. Whichever the case, Wall Street began moving up solidly from November, and has recently been hitting ever more all-time highs.

Those expecting a recession also expected, as a result, a bear market. 2022 had been extremely tough for higher valued equities because higher bond yields translated into generally reduced valuations, plus many assumed rising rates must lead to an economic and earnings recession. That recession has not occurred. As 2024 has unfolded, the proportion of still-bearish Wall Street commentators has been diminishing.

The initial spark for the late 2023 rally was a growing expectation the Fed would begin cutting rates in 2024, as inflation numbers came down. Given the strength of the economy (let alone no recession), initial assumptions of up to six rate cuts in the year have been cut back to three. Yet Wall Street is unfazed.

If the US economy is absorbing higher rates without incident, then it’s okay – buy the stock market.

We have also switched now to debating just when the RBA might make its first cut, even as RBA rhetoric has remained hawkish. As February unfolded, we saw lower than expected CPI numbers, higher than expected unemployment, and a lower than expected GDP, all leading to the assumption the RBA will not be pushing rates any higher. It’s just a matter of when the first cut comes.

From the close on January 31 to the close on February 29, the ASX200 rose 0.2%. Year to date, the index had returned 1.99% at end-February and 6.04% year on year.