The Australian June 30 reporting season hits top gear this week with 36 major companies due to release earnings, which will tell us a lot about the sustainability of the market at current levels, especially the shares of big banks and their long two-year rally.
Led by the Commonwealth Bank, a number of leading financials will dominate reporting this week.
The others include a third quarter trading update from the ANZ on Friday, Bendigo and Adelaide’s full year figures later today and Suncorp on Wednesday, the same day as the CBA reports.
Westpac and the NAB are due to produce updates next week.
And with high profile Sydney stockbroker Charlie Aitken reportedly telling clients to sell bank stocks after their market rally, the string of results this week and next will test the longevity of the banks’ two-year rally and whether investor sentiment towards the banks remains intact.
Aitken reckons the weak economy (and he didn’t mention the Reserve Bank’s confirmation of the size of its downgrade of its growth forecasts over the next year on Friday) means there will be less business for the banks, outside of housing.
As well there’s the threat from the problematic federal budget, weak consumer confidence (which will again be measured this week) and weak demand for loans from business.
According to analysts the CBA’s pre-tax earnings will top $12 billion. The CBA’s net profit is forecast to top $8.6 billion, which would be a record. Revenue could be close to $23 billion.
The CBA could lift its final dividend this week by 10%, and total dividend for the year could top $4 a share.
The big question to be answered is whether the financial planning scandal has had an impact on the bank’s funds inflows or has added to costs.
On Friday the bank announced that as part of a small management shuffle, Grahame Petersen, the executive in charge of the wealth management business at the bank when some of the rorts were happening, would retire at the end of 2014. He will remain on some of the boards of the bank’s subsidiaries.
Bendigo Bank’s results will be less spectacular, while Suncorp’s insurance businesses are expected to lag the very solid result expected from rival Insurance Australia Group. It’s banking business is expected to improve after the sale of its dud property portfolio.
Besides those companies, Telstra’s full year figures on Thursday will tell us whether the mooted higher final dividend will be unveiled to match the higher interim.
As well Goodman Fielder releases its annual figures (with big write-downs included) in what could be its last report as a listed company once the current takeover is finished.
JB Hi Fi’s full year result is well known, along with earnings, so its report today won’t be too different from the earlier guidance.
But what will be watched is whether a higher final dividend will be paid.
Bradken tomorrow will be another to report a result with already revealed write-downs and losses.
Given the weaker result, the payment of a lower final dividend is a question being asked in the market.
Besides the CBA, Suncorp and Goodman Fielder, Wednesday also sees blue chip CSL reporting, along with Computershare, Primary Health Care, Carsales.com and an interim from OZ Minerals.
Thursday sees earnings from Telstra, Fairfax Media, Dexus Property, Envestra (being taken over), Goodman Group and SingTel (Optus).
And, James Packer’s Crown Resorts is expected to release its earnings result on Friday.
The AMP’s chief economist Dr Shane Oliver said in a note at the weekend, "It’s way too early to draw any conclusions from the June half profit reporting season in Australia as only a few companies have reported.
"But so far so good with more companies seeing profits up than down and dividends continuing to increase with Rio being a standout on this front.
"The big miners are clearly responding to investor demand for dividends with Rio’s dividend yield now being 4.8% and BHP’s 4.9%."
He said consensus earnings estimates for 2013-14 are for 12% growth led by resources with +28% (Rio Tinto missed last week with its solid 21% increase in earnings).
"The combination of the lower iron ore price, the higher $A and the hit to confidence from the Budget suggest a bit of downside risk to consensus estimates.
"Given relatively elevated PEs compared to a few years ago underperformers will be hit hard.
"Most interest is likely to be on outlook statements with a bit of upside potential for companies exposed to housing, non-mining construction & retailing.
"Consensus 2014-15 earnings growth estimates are modest at +5%,” he added.
