Chart of the Day: ASX50 = ASX8

Accounting and financial group KPMG has constructed a detailed review of the top 50 listed companies – the ASX50 – following the end of the corporate earnings results.

Here are some key findings, which are revealing:

  • Statutory (reported) profits for 12 months ending 30 June 2011 are up 33%
  • Underlying (cash) profits for same period up 26%
  • The big 4 miners (not named, but obviously BHP, RIO, FMG, NCM) account for 52% of ASX50 profits and 78% of yearly profit growth
  • The big 4 banks (CBA, ANZ, NAB, WBC) account for 23% of of ASX50 profits and 21% of yearly profit growth
  • The remaining 42 companies only had 1% growth in reported profits for the year, and a 17% reduction in profits for the last 6 months
  • Only 16 of these 42 companies had an improved result and six of these were in the energy sector (hence relied on high energy prices)
  • Three years after the GFC, profits from the non-bank, non-miners are 19% below June 2008 results.

And here are the charts of profit before tax, in 6 months period from the GFC to now:


In the June 2008 period, the big 4 miners represented 48% of profits, its now 52%

So the big 8 “Houses and Holes” companies contributed 99% of all profit growth and made up 75% of all profits for the top 50 companies in Australia. The only other profit growth came from energy companies who also require high commodity prices.

And because of ructions in overseas markets, namely a possible slowdown in China and financial/credit crises in Europe, risk institutions have pushed down the only profitable sectors of the ASX50 (and hence the ASX200 as they dwarf all the smaller companies by capitalization size).

Going by the chart below, it makes more sense to follow the ASX50 instead of the ASX200, and therefore, just follow the “top” (sic) 8 companies, the “ASX8”.

ASX50 (blue) vs ASX200 (green) for 5 years - essentially the same

This is the anti-thesis of robustness, of sound economic allocation. This is fragility, writ large.

Latest posts by Chris Becker (see all)

Comments

    • I shall call you “ASX8” from now on.

      And as Q Continuum and I have analysed previously, the big (and little) miners rely upon sustained, higher commodity prices for their profitability. A cursory glance of their balance sheet shows this plainly.

      Without it, they are marginal businesses. Like a retailer almost.

      • So they’re a house of cards.
        Great post Prince. I knew that the ASX20 made up the bulk of the ASX200, from a few years ago when I used to trade Aussie shares, but didn’t realise how important the ASX8 had become.

      • The small miners are as you say Prince are marginal businesses (the ones with mines in Australia at least), and I see many of them folding as our compliance sinks them regardless of price. If the Greens get gold in the mining tax then many of those marginal mines here will close again.

  1. Prince…cool post thanks.

    It’s pretty grim when you see we really are miners, and bankers. Nothing of housing specifically, but I know a few builders who claim it’s difficult to make money now.

    I hope the world’s greatest treasurer can find time in his lecturing to the EU to have a look at some fundamentals here.

    This is grim:
    – The remaining 42 companies only had 1% growth in reported profits for the year, and a 17% reduction in profits for the last 6 months
    – Only 16 of these 42 companies had an improved result and six of these were in the energy sector (hence relied on high energy prices)

  2. And to think that around 70% of the nations retirement funding hinges on this.

    Frightening doesn’t come close……..

    • Its an area where I agree with Chris Joye completely: too many pension/retirement plans are overweight Aussie shares, which means Aussie banks and big miners.

      The problem is of course, where else do you invest or park your savings?

  3. thanks Mr Prince..sobering stuff indeed.
    Over the past few sessions the evidence of the 2 department stockmarket was in neon display. ie the big 8 ( mainly banks) moves obscuring serious falls ( and latterly rises) in the rest of the asx 200 ( the others department).

  4. We have an economy that has been hollowed out. Dare I say it, the consequence of several decades of misdirecting financial resources into consumption (housing), in part achieved by turning the housing market into a tax haven (negative gearing), while imposing uncompetitive tax rates on other business income. Together with a Mediterranean-style record in achieving productivity improvements, and an abysmal failure to implement policies that would have supported the creation of new industries, it is absolutely no wonder we now have a completely marginal economy.

    At another level, it is possible to construe this as the result of running current account deficits for ever and ever – you end up selling your best assets to service the interest on all the money you’ve borrowed.

    It also follows that when the resources crunch hits this time, the Australian economy will implode…and the AUD will go with it.

  5. “Its an area where I agree with Chris Joye completely: too many pension/retirement plans are overweight Aussie shares, which means Aussie banks and big miners.

    The problem is of course, where else do you invest or park your savings?”

    I agree completely Prince. Earlier this year I had a detailed look at the portfolio in my Super Fund. I did the whole thing….looked at company prices, past earnings and dividends, balance sheets, earnings horizons, discount rates….the whole thing. I then came to the conclusion there were very very few Australian companies that I could justify holding and sold the lot. The alternatives were cash (low risk) or international bonds and equities (not a bad idea with a highly-valued AUD…).

    • Hi briefly,

      The perspective of an oversea investor (they hold 40% of the Australian share market, don’t they?) is quite different. What’s the alternatives for them? Housing? No. Cash? Negative return. Bonds (very low, negative returns with risk of price declines)? Not really…. At this level the ASX 200 is still yielding around 5% p.a., that’s not too bad.

      The issue for them is the exchange rate obviously, if they see the AUD going down, it could make the ASX not very attractive. In that case, they need to get out very fast, and come back in at cheaper prices.

      cheers

      • You’re quite right, mb. Our markets in general have been held up by foreign portfolio flows into equities and bonds. Looking back at the period since the markets intra-year high, it is pretty obvious that selling has outweighed buying in equities at least. I wonder if there is a statistical record of foreign flows int/out of equities and bonds….must be one somewhere.

  6. Maybe MB should start a new index…..the MAX10….the four miners, the four banks, the two retailers.

    Then MB could compile and publish its own forward-looking index……a composite of:

    The MAX 10
    The ABARE commodity futures index
    An AUD/USD or AUD/TWI futures composite….maybe a relative strength index
    An AUD interest rate futures composite (a weighted composite..cash, 90-day, 2 year, 10 year matrix)
    The labour market trend data
    The CPI trend data
    Industrial output (the usual suspects…electricity supply, mining & resources, manufacturing)
    Telecommunication traffic
    Rail-freight volumes

    Put these things together and you might have a reasonably good real-time forward-looking view of the OZ-economy.

    This could provide MB with its own statistical series…relating the recent past, the present and the near-future in an updating index…MB could become the oracle of the OZ economy. Goodness knows, you are already the reviewers of choice.

    • Hmmm…..well, yes, there is something to that, as DFM has mentioned with his factor model for FX and with my macro model for equities….and now that RumpleStat is on board.

      There is potential there…