How will companies fare this reporting season?
February is here once again, and with that another reporting season. Conditions for this February reporting season are materially different to the ones faced by investors back in August. While we were in the midst of lockdowns in Sydney and Melbourne, the June 2021 period just passed represented a robust set of operating conditions as economies were roaring from re-opening and fiscal stimulus, we had a manageable COVID-19 situation (B.O – before Omicron) and “supply chain disruptions” weren’t really a thing.
Fast forward six months and societies have dealt with 2-3 months of lockdown before Omicron surfaced, isolation policies that have put further strain on already stretched supply chains (labour shortages) and fading fiscal stimulus measures in the backdrop of elevated inflation. An extremely challenging set of operating conditions for most companies unless you’re a software or an internet business – albeit if the NASDAQ is any guide, it appears even the stay-at-home winners are rapidly losing steam (see: Netflix, Peloton et al).
We have also seen a number of companies pre-report with mixed results. Unsurprisingly, companies that sell widgets with greater reliance on manufacturing and logistics supply chains are likely to be doing it tough – with pressure on both gross margins (commodity inflation) and operating costs (logistics). Retail may also be facing some fatigue as consumer spending faces tough sales comps.
While some of these issues will be temporary, there will be undoubtedly some casualties from a share price perspective, which will offer up opportunities for quality businesses.
On the other end of the spectrum, tech-related stocks that are less exposed to supply chain interruptions are facing the spectre of rising rates which have already left a mark on share prices. Any change in the trajectory of revenue growth is likely to have an outsized impact given the compression in revenue multiples we have seen in high-growth stocks globally.
Finally, companies that are exposed to re-opening dynamics are likely to have seen some increase in activity and optimism, but balance sheets will remain critical while question marks linger on the longer-term outlooks of these businesses.
We have prepared a reporting calendar for you to keep track of which businesses are reporting when. You can download this here.
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.
INVEST WITH MONTGOMERY
