With the Australian December half earnings reporting season having wrapped, confirming a sharp rebound in profits and dividends, the tough stuff now starts as we head into comparisons with the pandemic and lockdowns that hammered energy prices and boosted online businesses, especially for most retailers.
Comparisons are invidious at times but for the next 10 months they will become increasingly so for a lot of businesses. Coles best summed up the earnings challenge for companies and their investors large and small in its outlook for the rest of the year, and into the 2022 financial year.
“Depending on COVID-19, vaccine roll out and efficacy, and other factors, sales in the supermarket sector may moderate significantly or even decline in the second half of FY21 and into FY22.”
Coles has already seen a slowing in sales early in 2021, so has online retailer, Kogan (that’s compared to the final quarter of 2020 and the December, 2020 half year.
Resource companies though will still have an easy comparison right up until the August-December period. That’s when iron ore copper and other commodity prices started moving higher in a decisive fashion, with the surge concentrated in the final quarter of last year.
That’s when the comparisons will get tougher for the likes of Fortescue Metals, BHP, Rio Tinto, Oz Minerals, Woodside, Santos, Oil Search and a host of gold companies (gold prices peaked in August of last year).
The banks – large and small – will have no problems producing solid rises in earnings for all of 2022 (the CBA balances on June 30, the other three majors on September 30. The trio – Westpac, ANZ and NAB rule off their interim accounts on March 31.
There were only a few rats and mice among the flood of late filers yesterday (Monday). Freedom Foods loss and confirmation of a need for a huge capital injection was the major news.
Looking at the season, the AMP’s Chief Economist, Shane Oliver says the results were much better than anticipated.
“While the strength of results tailed off a bit at the end of the reporting season 56% of companies have seen profits rise which is up from just 36% six months ago, 51% have beaten expectations compared to just 32% six months ago and 47% have increased dividends compared to 55% cutting dividends six months ago,” he wrote at the weekend.
“Notably the banks have been pushing dividends back up as they reduce bad debt provisions and the big miners have announced record dividends.
“As a result of the strong rebound in profits, more beats than misses and positive guidance consensus expectations for earnings growth in 2020-21 have now been revised up to 34%, from +21% a month ago and just 8% six months ago.”
Dr Oliver says that for the rest of this financial year resources companies are now expected to see 52% earnings growth.
“Expected 2020-21 earnings growth for banks has now been revised up to 46%, with industrials expected to see 9% earnings growth led by IT, media, health, gaming and other material stocks,” he wrote.
“The biggest upside surprises and earnings upgrades have been for media companies, banks and retailers, attesting to the cyclical upswing in the economy,” according to Dr Oliver.
