The Australian profit reporting season seems to be off to a very good start with better than expected results from a range of companies including Alumina, ResMed, JB Hi-Fi, Commonwealth Bank, Computershare and BHP.
This week we get another flood of results.
The AMP’s chief economist, Dr Shane Oliver says that of the 30 major companies to have reported so far, 50% have come in better than expected compared to a norm over the last 6 years of 46.5% (see the chart below).
There have been no major blow-ups or surprises. The evolving system of guidance updates before and after the June 30 balance date seems to be working.
This week we will get a flood of losses from the property sector to match or exceed those from Stockland and its $18 billion loss announced last week.
Dr Oliver says that 55% of companies have seen their share price outperform the market on the day their result was released.
"So while 2008-09 likely saw the biggest fall in profits since 1990-91 this is shaping up as one of the best reporting seasons in several years in terms of companies beating estimates.
"Cost savings have played a major role in profit surprises but revenues have also come in better than expected."
Share markets had a volatile week, but continued to rise. Australian shares surged to their highest level since last October helped by good profit results.
Dr Oliver says that after lagging global shares during the rebound from the March lows, Australian shares now seem to be staging a dramatic catch-up.
Commodity prices and the Australian dollar also continued to move higher on optimism about the global growth outlook.
Bond yields fell as US bond auctions went well.
Dr Oliver says that having risen sharply over the past five weeks shares are at risk of a pause or correction, particularly as we traverse the normally rough August to October period.
"However, any share market corrections are likely to be limited and should be seen as buying opportunities, as the broader trend in share markets is likely to remain up.
"There is still a pile of cash sitting on the sidelines which is likely to come into the market as confidence in the economic and profit outlook continues to improve and as investors seek higher returns than those available from low yielding cash and government bonds.
"Shares have likely entered a cyclical bull market that has much further to go.
"We remain of the view that a move up to 5000 for the Australian All Ords and ASX 200 indices is likely by year end."
Friday saw results from major contractor, Leighton Holdings and despite the expected downturn, the market liked the positive comments for the current year that went with the results.
The shares jumped more than 6% after the company posted a 28% fall in annual earnings, but forecast a net profit of around $600 million in the current year.
That would only take earnings back to the level they were in 2007 when record profits of $607 million were reported.
Leighton attributed the fall in net profit to $440 million in the year to June 30 to a reduced contribution from property development and impairments on the company’s investments.
These write-downs included losses on its listed and toll-road investments including BrisConnections, ConnectEast, RiverCity Motorway, the engineer Macmahon and the Brisbane home builder Devine.
CEO Wal King said federal government infrastructure spending, work on the planned national broadband network and growing demand for iron ore and coal as drivers of revenue in the future.
"For the 2010 financial year, the Group is confident that revenue will exceed $19 billion and expects a net profit after tax of around $600 million, subject to any further investment impairments," he said in the statement accompanying the results.
"High levels of work in hand, combined with significant spending by governments to stimulate economic activity, both in Australia and overseas, and a resurgence in growth (in) China, will maintain our operating performance in 2010,” Mr King said.
"The result represents a similar level of operating performance to the last year and provides a good base for the group to resume profit and revenue growth in 2011 and beyond."
The comments helped lift the company’s shares $2.27, or more than 7%, to $33.30.
Leighton declared a fully franked final dividend of 55 cents, down from 85 cents in the prior year.
That is as much a sign of the pressures the company found itself under during the year, than any other indicator.
At the same time a cut in dividend also sends a signal that the company isn’t as bullish about the coming year as other comments would indicate in that it is conserving cash.
Mr King said work in hand remained close to record levels at $37 billion at June 30, up from $30.3 billion at the corresponding point last year.
Revenue for 2009 was $18.3 billion, up 26% from $14.5 billion in the previous year. Infrastructure contributed $10.4 billion in revenue, resources $5 billion and building and property $2.9 billion.
At June 30, Leighton had assets worth $7.7 billion, gross cash of $666 million and net borrowings of $613 million.
Melbourne-based printer, distribution and media services group PMP lost $27 million in 2009, but hopes that’s the end of the flow of red ink.
However, directors do expect trading conditions to remain challenging this financial year.
PMP’s loss of $27.2 million for the year ended June 30 was significantly worse than the $78.9 million profit it posted in the 2008 year.
PMP said e
