If we thought last week was dramatic, with the huge profit of BHP Billiton, good to average results from a string of companies like Qantas, a poorly received effort from Wesfarmers, and bad news from Babcock and Brown, then the coming week will be climatic.
Centro Properties, Centro Retail and Allco Finance Group, not to mention Babcock and Brown Power will reveal a flood of red ink. It won’t be nice, but it will be a necessary purging.
It will be one where the good news of the likes of Woolworths, Rio Tinto and Woodside is completely overshadowed by bad results, and the red ink from a string of former higher fliers. Property groups like Mirvac, Becton and GPT will feature in ways their shareholders would have thought unheard of a year ago.
And there will be infrastructure groups, like Australian Infrastructure Fund, Transurban and Connecteast that will report figures that will be sliced and diced to see if they stand up.
Suncorp Metway is will confirm the shock guidance of a month ago that revealed a halving in profit: but it would have been worse but for the release of central reserves and changes to the claims valuations that pumped over $400 million into the business’s bottom line.
In total, around 75 major companies are due to report this week including AMP, Harvey Norman and Westfield.
Its not surprising that of the 10 worst performing shares in the ASX 200 last week, seven were either financial engineers (Babcock and Brown), or its satellites (the power and infrastructure arms), or property groups, such as Valad which fell 18% or 10 cents to 43 cents.
As well Virgin Blue was on top of the list of losers because of the big spike in oil prices on Thursday, which was reversed on Friday. Gunns was there as it looks more and more likely its Tasmanian pulp mill project won’t get financed.
And ABC Learning was there as well, down 21.1%, or 15 cents at 54 ahead of its request to have trading halted ahead of an announcement that will come today or tomorrow.
Rio’s result will be watched closely, particularly in view of BHP’s ongoing takeover offer. Comparisons will be made between BHP’s second half and Rio’s first half figures.
The AMP’s Dr Shane Oliver says that while the results overall are expected to remain broadly in line with expectations, outlook statements are likely to remain cautious on balance and result in more downgrades to consensus earnings expectations for the year ahead. He says Consensus earnings expectations for 2008-09 are likely to fall from around 15% to 5-10%
The key themes so far a low proportion of results coming in better than expected.
The proportion of results coming in above expectations is running at just 22% which is well down from an average of 51% over the previous four years whereas 46% of results are in line.
In fact this reporting season has seen more companies coming in below expectations (32%) than have come in above (22%). See the chart below.
"More significantly though, there have been more companies with cautious or outright negative outlook comments than with positive comments whereas back in August last year the ratio of positive to negative outlook comments was running at 12 to 1.
"The upshot is that analyst earnings growth expectations for 2008-09 have been revised down further, albeit from unrealistically optimistic levels around 20%," Dr Oliver said.
"Other themes flowing from the reporting season so far have been a mixed picture for margins, rising interest costs, the negative impact from the strong $A and small caps reporting weaker results than large caps due their greater sensitivity to the weakening Australian economy.
"Shares still seem to be trying to build a base after the slump into mid-July and still have the potential for more upside into mid-September.
"However, the next few months are likely to remain rough for shares.
"More weakness in late September/October is anticipated as the global economic downturn feeds into more profit downgrades, particularly for cyclical sectors, and as bank asset write downs continue."
"Although shares may see more downside over the next few months, we continue to see a decent rally getting underway during the normally strong December quarter.
"Some of the pre-conditions for a sustained recovery in shares are falling into place.
"The oil price is well off its highs and this, along with weakening economic activity, should help to reduce inflation worries and clear the way for lower interest rates both globally and locally.
"There are some tentative signs that the US housing market is close to bottoming with downwards momentum in sales, starts and house prices slowing down and shares are also very cheap.
"This all suggests good returns from shares on a one year view, even though the next few months remain uncertain.
"Further falls in bond yields are likely as global growth slows and this, with lower oil prices, takes pressure off inflation.
"The $A appears to be undergoing a short term bounce after becoming very oversold and this may see it rise back to around $US0.90.
"However, the tide is now going out for the $A as the combination of falls in Australian interest rates and a correction in commodity prices suggests the currency likely has more downside ahead of it over the next six months or so (possibly to around US$0.80)."
