Reporting season wrap-up

Reporting season wrap-up

Over the past three weeks, our investment team has analysed each and every single report announced to the Australian stock market. We’ve prioritised those businesses we own to gather new information that’ll help us determine if our view (for better or worse) on their future outlooks has changed, and whether their removal from, or addition to, our portfolio is warranted.

With literally hundreds of reports to analyse and scores of management teams to meet, it’s an incredibly busy time. Overall however, we now feel we have broken the back of reporting season, and our first impression is that the usual suspects continue to do well.

What we tend to discover each reporting season, is that the better performing businesses are generally keen to get their results out into the public domain early. That continued to be the case this year. We continue to find that towards the end of every reporting season, the quality of the businesses reporting really drops off. This is always something to watch out for – companies trying to hide amongst the avalanche of reports on the dying days. If you aren’t in fancy dress, it’s always a good idea to turn up to a fancy dress party late, apparently.

Rather than dwelling on those who reported sub-par results, let’s focus on the best (as we see them) and leave to rest to everyone else.

For an updated (but not exhaustive) list of those results which caught our attention this year, please click here. A number of businesses have been deliberately omitted given we are currently still accumulating a position.

For a number of years now, banks (ANZ, CBA), healthcare and pharmaceuticals (CSL, SRX, RHC, SHL), fund managers (MFG, PTM, PPT), certain IT businesses that own their own software (HSN, IFM, IRI), internet listing sites (SEK, REA, CRZ), food and staples (WOW, WES), telecommunications (IIN, AMM, BGL) and a few miscellaneous consumer-facing businesses (GEM, AGI, FLT), all continue to perform well in the current environment.

And the results being recorded by many of these listed businesses are nothing short of exceptional, especially considering all the doom and gloom in the media about the death of manufacturing, mass retrenchments, soaring unemployment and even wars that look set to break out.

So remember, while none of the 41 companies discussed here represent recommendations (keeping in mind, you may want to seek professional advice before transacting in any security), we think looking at these business offers a great place to start. And with an average return on equity of 25 per cent, versus the ASX300’s 17 per cent, this table is a list of high quality businesses, each with excellent underlying business momentum at present. Many are worthy of further research.

In his 2014 annual letter to shareholders, Buffett astutely noted that: “Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.” And we couldn’t agree more.

If one simply focused their attention on a number of the listed businesses instead of the news being reported on a day-to-day basis, then rather than being fearful of investing, one could focus on owning a portfolio filled with such businesses, and in turn, achieve satisfactory returns over the longer-term.

As a core practice here at Montomgery, we continue to focus on businesses with strong growth profiles, bright prospects and undemanding valuations. As such, we hold a number of stocks shown in this table, and indeed expect them to be much larger businesses in the years ahead.