August 2023 reporting season calendar
As we dive into August reporting season, and consistent with all reporting seasons following the pandemic, investor attention will now focus on the 2024 outlook for companies and their profits.
FY23 earnings for the S&P/ASX200 are expected to decline by around three per cent. For the industrials, excluding financials, earnings are expected to grow by between two and three per cent. FY24 earnings per share (EPS) growth for the S&P/ASX200 Industrials has already halved from 12 per cent aggregate growth expected in February to approximately six per cent today. To put this in perspective, however, if companies produce six per cent growth in aggregate, it will be only marginally slower than the long-term average of circa seven per cent.
Among the Top 50 companies, positive earnings updates have outweighed negative updates. The reverse is true outside the top 50, with tougher economic conditions apparently hitting smaller companies initially. That larger companies have proven more defensive has been reflected in valuations with 12-month forward price to earnings (P/E) ratios for healthcare, consumer staples and communications sectors above long-term averages.
Estimates for FY24 from those companies willing to take a guess, appear to be less confident. Less than a third of companies reporting in August have provided any guidance. With greater uncertainty from companies, and within the professional investor community, the stage is set for wide divergence between analysts’ estimates and company guidance. Consequently, it is reasonable to expect some large share price moves.
Professional investors have been underweight retail stocks heading into reporting season, and weak trading updates from retailers during May and June have justified that bias. The lagged effect of months of higher interest rates is now impacting the economy.
We will be interested in the level of confidence management teams display about 2024 earnings, and whether any communicated optimism is realistic. The effect of higher interest costs on earnings, consumer demand and margins will also be important to watch. Of particular interest will be whether some companies come to market to raise capital.
While we wonder how confident retail CEOs can be about pinpointing a turnaround in their prospects, share prices can sell off to a level reflecting too bearish an outlook. If that assessment is made, more than all the bad news may have been factored into those share prices, rendering them potentially good value.
As our focus remains on ‘quality’ we are confident many of the companies in our portfolios will display the desirable attributes of a growing earnings profile, sound balance sheets and strong cash flows.
If you would like to follow which companies are reporting when, access a reporting calendar here: August 2023 reporting season calendar
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
