While the overall results were slightly weaker than usual, they weren’t as dire as feared, AMP’s chief economist, Shane Oliver, said in a recent update.
Earnings for the last financial year declined by 4.3 per cent, exceeding the initial consensus of a 3.5 per cent fall.
The energy sector led the downturn, as expected, with significant downside surprises emerging from industrials, telcos, and utilities. However, consumer stocks provided a glimmer of hope with results that were not as bad as anticipated.
“The rise in the proportion of companies raising dividends is positive but outlook comments were more cautious and this, along with the weaker-than-expected overall results for 2023–24, led to a downgrade in consensus earnings expectations for this financial year to a 4 per cent rise from a 5.4 per cent rise at the start of August,” Oliver said.
“Despite the downgrade to aggregate earnings expectations, investors appear to be looking through it with hopes for relief ahead from eventually lower interest rates,” he added.
Interestingly, 38 per cent of companies exceeded earnings expectations, slightly below the norm of 40 per cent, while 34 per cent fell short, which is also below the typical 41 per cent.
Additionally, 55 per cent of companies reported higher earnings compared to the previous year, though this was just shy of the average 56 per cent.
Dividends also painted a cautious picture, with 56 per cent of companies increasing payouts, slightly below the norm of 59 per cent.
“The good news is that less companies are talking about inflation, but unfortunately, there has been a rise in talk of job cuts,” Oliver said.
‘Beware the banks’
VanEck portfolio manager Cameron McCormack noted that, amid a challenging economic landscape, the ASX reporting season saw shares of companies that beat earnings expectations rise by an average of 4.5 per cent, while those that missed fell by 3.1 per cent within 24 hours of their earnings release.
“We maintain our conviction that the S&P/ASX 200 will reach 8,300 by year-end,” McCormack said.
“We see mid caps continuing to show strength for the rest of 2024 after being the standouts this season. They reported the most net beats, upward price target revisions and offer the highest consensus 12-month price target returns.”
Looking forward, McCormack cautioned investors to “beware the banks and mind the miners”.
“Investors should be cautious about heavy exposure to Australia’s mega-cap banks and mining companies. CBA is significantly overvalued, with no sell-side analyst recommending it at the current price. It remains the most expensive bank globally, with stagnant earnings growth and incrementally rising non-performing loans,” McCormack said.
“With China’s steel industry slowing down, major players like BHP Group have expressed concerns about declining demand after decades of growth. The one bright spot are Australian gold miners, whose balance sheets, cash flow generation, and capital allocation strategies have never been stronger. The global monetary easing cycle has been beneficial for gold prices and, consequently, for gold mining companies.”
