August Result Season 2024: The Wrap

This story features INSURANCE AUSTRALIA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: IAG

Download related file: FNArena-Reporting-Season-Monitor-August-2024

By Rudi Filapek-Vandyck, Editor

It may have taken a little longer than intended, but we are -finally- closing the books on the local results season that was August 2024.

As per always, it has been extraordinary busy, in particular as corporate results nowadays are crowding together inside the final two weeks of the season. We laugh, we sigh, we might even lose our appetite for more during those peak days, but then we hear about those poor analysts that endure the same avalanche during a time when average research teams are much smaller, and we count ourselves lucky.

As per always, some mistakes and omissions have occurred throughout the many updates and we have been checking and correcting in the available time since. Apart from updating views and insights on companies’ future prospects, each reporting season turns into a great rejuvenation of the FNArena database, including figuring out which broker has lost an analyst which leads to certain stocks no longer being covered.

Investing in the share market is essentially about participating in corporate wealth creation, preferably through accumulating profits and cash flows, but things are seldom that simple and straightforward. In 2024, markets are very much linked to what happens in bond markets, which in turn are guided by the prospect of central banks loosening policy.

That process has by now well and truly begun, with Australia’s RBA firmly lagging its much larger international peers.

With so much emphasis on central bank policy, and the mass-anticipation of it, investors might be forgiven to think there’s very little use in paying any attention to corporate results, but that impression misses the fact that at the singular share price level the impact from August results has been brutal when owning the wrong stocks.

Observation number one is that responses to reported financial results have been above-average, mainly to the downside. This is probably what should be expected when share prices have rallied a long way from their 2023 or 2022 bottoms, making valuations more vulnerable to punishment, of which there have been many.

At the macro-level, the ‘expensively’ priced banking sector did not sell off, while the ‘cheaply’ priced resources sector couldn’t provide sufficient reasons for a come-back. On the contrary, this is where many of the season’s disappointments were outed. Companies linked to consumer spending performed well-enough, broadly taken, and the Gen.Ai theme kept its footing, both locally and in the USA, which also allowed the Aussie Technology sector to crown itself to Winner of the Season.

Reporting seasons are the times when views and prognostications are being refreshed, which automatically leads to changes in Model Portfolios, conviction calls and sector preferences. Further below are the changes registered by FNArena as a result of the August 2024 reporting season.

But first let’s run through some of the key statistics that have defined the recent season.

The Key Stats

The FNArena Corporate Results Monitor reviewed 384 individual companies, in line with recent years, making it probably the most extensive and broad-based assessment of what goes on across and inside Corporate Australia this year.

Of those 384, 141 results either ‘missed’ or ‘met’ analysts expectations, with the remaining 102 categorised as a positive surprise, i.e. a ‘beat’. Percentage-wise, this makes August 2024 a rather un-inspiring event, delivering 36.7% misses and meets and 26.6% positive outcomes. The average price target throughout the season went backwards by -0.23%.

The latter decline is quite small, but then if everything works out well and in line with projections, price targets should go up, not decline, when corporate Australia updates its financial performances and forecasts. The latter has played an important role in the subdued sentiment that has emanated from the Ausgust season: most companies were able to match forecasts, but management guidances for the period ahead proved too conservative for general comfort in many cases.

Putting these numbers in an historical context, the highest percentage of ‘misses’ for all the preceding August seasons since 2013 had been 28%, recorded in August last year. The low percentage of 26.7% beats has only been beaten twice to the downside; in August 2013 (25%) and in 2019 (24%). Both reporting seasons were equally a reflection of tough times.

The numbers look worse for the ASX50, but slightly better for the ASX200 where more companies managed to outdo analysts forecasts (31.7% beats).

On CommSec’s data-gathering, just under $35bn will be paid out to shareholders in the form of dividends, marking an increase of 5% on last year. But if we do include dividends by major banks in June and July the total lifts to $45bn, up 7% on a year ago.

This typifies the Australian corporate culture: when times are tough, let’s compensate shareholders with higher dividend payouts. Special dividends were one of the stand-out features in August. CommSec predicts some $80bn in dividends will be paid out to shareholders in FY24. This too would be an increase of 5% on FY23.

Major miners cut their pay, but banks and insurance companies provided the positive offset. In terms of the outlook, however, CommSec reports dividend payouts are expected to ease by -2% for the financial year ahead, led by anticipated declines for energy companies and consumer discretionary sectors.

Consensus forecasts declined throughout the month, as is usually the case in Australia, with average FY24 EPS falling to -4.3%. The FY25 EPS forecast has also declined, now projecting positive growth of 4%. The share market’s PE ratio (ASX200) is well-above average at 17.5x forward-looking.

The twelve months ahead implied dividend yield for the major index is a below average 3.7%.

Below are the changes made to Model Portfolios, Conviction Calls selections and sector favourites by analysts as a result of the August reporting season (as registered by FNArena over the month and leading into September).

For a full and detailed appraisal of the season, see the document attached. Also: paying subscribers have access to FNArena’s archive of past Monitors on the website.

Barrenjoey

Updated selection of Top Picks:

-Insurance Australia Group ((IAG)) among financials, as well as GQG partners ((GQG)) and Westpac ((WBC))

-Xero ((XRO)), Pexa Group ((PXA)) and Dicker Data ((DDR)) in the technology sector

-Vicinity Centres ((VCX)) and Abacus Storage King ((ASK)) among REITs

-South32 ((S32)), Lynas Rare Earths ((LYC)) and Perseus Mining ((PRU)) among miners and Strike Energy ((STX)) in the oil&gas sector

-ResMed ((RMD))

-Metcash ((MTS))

-Aristocrat Leisure ((ALL))

-Reliance Worldwide ((RWC))

-Brambles ((BXB))

-Seven Group ((SVW))

Citi

Top Picks among AREITs:

-Scentre Group ((SCG))

-Stockland ((SGP))

-Goodman Group ((GMG))

-National Storage ((NSR))

-Ingenia Communities Group ((INA)).

Citi’s two favourite exposures to the local healthcare sector are now Australian Clinical Labs ((ACL)) and CSL ((CSL)).

The five least liked exposures are (from the bottom up) Pro Medicus ((PRO)), Nanosonics ((NAN)), Cochlear ((COH)), Fisher & Paykel Healthcare ((FPH)) and Healius ((HLS)).

For online retailers, Citi’s favourite is Temple & Webster ((TPW)) with Kogan ((KGN)) Sell-rated and least preferred.

Goldman Sachs

Goldman Sachs has removed Woolworths ((WOW)) from its Asia Conviction List, but the stock remains included in the broker’s APAC Conviction List.

Only three other ASX-listed companies are included in both selections:

-Qantas Airways ((QAN))

-Lynas Rare Earths ((LYC))

-Xero ((XRO))

Jarden

healthcare favourites:

-CSL ((CSL))

-ResMed ((RMD))

-Telix Pharmaceuticals ((TLX))

-Integral Diagnostics ((IDX))

-Regis Healthcare ((REG))

Jarden’s has identified 20 Best Ideas among emerging companies (small and mid-cap):

-IPH Ltd ((IPH))

-Temple & Webster ((TPW))

-EVT Ltd ((EVT))

-Dicker Data ((DDR))

-Universal Store ((UNI))

-Nick Scali ((NCK))

-AUB Group ((AUB))

-Webjet ((WEB))

-Integral Diagnostics ((IDX))

-Capricorn Metals ((CMM))

-Michael Hill ((MHJ))

-NRW Holdings ((NWH))

-Light & Wonder ((LNW))

-Pointsbet ((PBH))

-National Storage ((NSR))

-Ingenia Communities ((INA))

-Karoon Gas ((KAR))

-Domain Holdings Australia ((DHG))

-Pepper Money ((PPM))

-Telix Pharmaceuticals ((TLX))

JP Morgan

Most preferred AREITs:

-Scentre Group ((SCG))

-GPT ((GPT))

-Dexus ((DXS))

-Charter Hall ((CHC))

JP Morgan’s Emerging Companies research team’s most favoured idea is Superloop ((SLC)) while ARB Corp ((ARB)) is least-preferred due to concerns about margin pressure.

Macquarie

Healthcare favourites:

-Ansell ((ANN))

-CSL ((CSL))

-Fisher & Paykel Healthcare ((FPH))

-Pro Medicus ((PME))

-ResMed ((RMD))

Macquarie’s selection of 16 Best Ideas among Quality small- to mid-cap companies:

-AUB Group ((AUB))

-Breville Group ((BRG))

-Flight Centre ((FLT))

-Fisher & Paykel Healthcare ((FPH))

-GQG Partners ((GQG))

-Integral Diagnostics ((IDX))

-JB Hi-Fi ((JBH))

-Lovisa Holdings ((LOV))

-Nick Scali ((NCK))

-Monash IVF ((MVF))

-Propel Funeral Partners ((PFP))

-Pinnacle Investment Management ((PNI))

-REA Group ((REA))

-Reliance Worldwide ((RWC))

-TechnologyOne ((TNE))

-Seven Group Holdings ((SVW))

Morgans

Stockbroker Morgans’ two favourites among mining servives contractors and services providers are ALS Ltd ((ALQ)) and Civmec Singapore ((CVL)).

Morgans’ Key Picks for consumer spending-related exposures are Beacon Lighting ((BLX)), Super Retail Group ((SUL)) and Universal Store ((UNI)).

Morgans’ list of Best Ideas:

-The Lottery Corp ((TLC))

-CSL ((CSL))

-QBE Insurance ((QBE))

-Woodside Energy ((WDS))

-GQG Partners ((GQG))

-WH Soul Pattinson ((SOL))

-ALS Ltd ((ALQ))

-Reliance Worlwide ((RWC))

-Beacon Lighting ((BLX))

-Amotiv ((AOV))

-Universal Store Holdings ((UNI))

-Elders ((ELD))

-Acrow ((ACF))

-Maas Group ((MGH))

-Karoon Energy ((KAR))

-ResMed ((RMD))

-NextDC ((NXT))

-Mach7 Technologies ((M7T))

-Camplify Holdings ((CHL))

-Superloop ((SLC))

-Treasury Wine Estates ((TWE))

-ClearView Wealth ((CVW))

-PolyNovo ((PNV))

-Flight Centre ((FLT))

-BHP Group ((BHP))

-Rio Tinto ((RIO))

-South32 ((S32))

-Dalrymple Bay Infrastructure ((DBI))

-Cedar Woods Properties ((CWP))

-Dexus Industria REIT ((DXI))

-HomeCo Daily Needs REIT ((HDN))

-Qualitas ((QAL))

Morgan Stanley

Morgan Stanley’s has identified six Key Picks among ASX-listed small and mid-cap companies:

-Accent Group ((AX1))

-Jumbo Interactive ((JIN))

-ARB Corp ((ARB))

-SiteMinder ((SDR))

-Data#3 ((DTL))

-Hub24 ((HUB))

For consumer-related exposures, Morgan Stanley retains a preference for staples as the valuation gap with discretionary retailers has widened too far. Morgan Stanley has Overweight ratings for Woolworths Group ((WOW)) and Endeavour Group ((EDV) and Underweight ratings for Wesfarmers ((WES)), JB Hi-Fi ((JBH)), Harvey Norman ((HVN)) and Super Retail ((SUL)).

Morgan Stanley’s Australia Leading Ideas Equity Portfolio has now included Audinate Group ((AD8)) shares in support of this broker’s view this month’s disappointment (through a subdued FY25 outlook) is simply a short-term set-back. 

Ord Minnett

The select list of highest conviction calls from analysts at Ord Minnett has seen numerous changes post August results.

Gone are Select Harvests ((SHV)), Webjet ((WEB)) and Whitehaven Coal ((WHC)). Instead, Electro Optic Systems, Qoria, SiteMinder and Stanmore Resources have been included.

The full list of Ord Minnett’s Conviction calls consists of the following 14 companies:

-Alliance Aviation Services ((AQZ))

-ARB Corp ((ARB))

-Cosol ((COS))

-EQT Holdings ((EQT))

-Electro Optic Systems Holdings ((EOS))

-Lindsay Australia ((LAU))

-Pinnacle Investment Management ((PNI))

-Qoria ((QOR))

-Red 5 (RED)

-Regis Healthcare ((REG))

-SiteMinder ((SDR))

-SRG Global ((SRG))

-Stanmore Resources ((SMR))

-Waypoint REIT ((WPR))

UBS

UBS’s Model Portfolio has shifted Overweight consumer discretionary companies

Wilsons

Wilsons’ Focus Portfolio has added James Hardie ((JHX)) and removed Netwealth Group ((NWL)).

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms