Earnings season steps into full gear this week and will continue through to mid-March with most ASX-listed companies reporting their interim results (first half year from July to December 2011).
This is an extremely important gauge of underlying economic performance (although many mistake a short term rise in the stockmarket as a rise in the economy – in the long run the market is a weighing machine, in the short term, its a casino), and will clarify many issues facing corporate Australia. In particular, investors should be mindful of the impact of the “de-consuming” or disleveraging of the Australian household on discretionary retail stocks and other industrials, with sales and margins likely to be under pressure.
On the flip side, mining services and related companies are likely to post strong growth as Mining Boom Mk 2 rolls on, but I will keep a close eye on any reports of competition from imports and skills shortages in the sector. Building and construction companies, as reported by Q Continuum last week (see interview in sidebar) will also be closely scrutinised, their engineering contracts hopefully offsetting the tumbling residential building.
Only the Commonwealth Bank (CBA) is making a full report (February 15th), the other big three doing so later in May. As I mentioned on ABC’s The Business last week, earnings are forecast to grow by about 2-3%, but the devil in the detail will be the change in Net Interest Margin (NIM), bad debt provisioning and loans in arrears rates.
Expect to hear about continuing “pressures” (i.e profit and bonuses under threat) which may result in further job losses.
Broker’s and institutions are mildly bullish about this earnings season, but as KPMG showed last year, it is likely that all profit growth will again rest upon the shoulders of the ASX8 – the top four banks (ANZ, Commonwealth, National and Westpac) and top four miners (BHP-Billiton, Rio Tinto, Newcrest and Woodside).
Most of the miners report this week (BHP-Billiton (BHP) Wednesday, Rio-Tinto (RIO) on Thursday, Newcrest (NCM) on Friday) as does Telstra (TLS) – Thursday – and Cochlear (COH) – tomorrow.
Finally, we will also be covering some of the unloved in the ASX Small Ords index – those up and comers and innovative companies overlooked by the institutions and treated like punts by brokers. It is from this population that the next Fortescue’s and Cochlears are created.
A full calendar will be posted shortly and MacroBusiness shall be reporting on earnings a bit more closely this time around.