Feature Stories | Sep 05 2017
Download related file: FNArena-Reporting-Season-Monitor-05-09-17-1
With the August result season now complete in 2017, the FNArena Result Season Monitor, which has been building throughout the month, is now complete and published here in its final form (see attached Excel file).
The table contains ratings and consensus target price changes along with brief summaries of the collective responses from FNArena database brokers for each individual corporate result, and an assessment of “beats” and “misses”. Australian corporate results tend to focus on the profit line, with all its inherent potential for accounting vagaries, tax changes, asset write-downs and other “one-off” impacts. FNArena has focused mostly on underlying earnings results (more in line with Wall Street practice) as a more valuable indicator of whether or not a company has outperformed or underperformed broker expectations. There is also a level of “quality” assessment here rather than simple blind “quantity”.
The Monitor summarises results from 319 major listed companies. By FNArena’s assessment, 87 companies beat expectations and, would you know, 87 missed expectations, for a percentage ratio of 27/27 or 1.0 beats to misses. The simple average of all resultant target price changes came in at a net 1.8% gain. In response to results, brokers made 48 ratings upgrades and 62 ratings downgrades, or a ratio of 1.3 to 1 downgrades to upgrades.
It is the first time since the Monitor began in August 2013 that the number of beats has failed to exceed the number of misses. The ratio of 1.0 beats to misses is thus the lowest and below the average of 1.3.
It must also be considered that while profit warnings are frequent ahead of any results season, profit upgrades in the lead-up are rare. Typically, companies like to get the bad news out there as soon as possible to temper the trashing they would receive if a big miss came as a shock. On the other hand, nobody minds a big beat. What the “miss” count does not show is how many companies reported “in line” with estimates that had earlier been downgraded following a profit warning.
It is for this reason the beat/miss average is 1.3 and not 1.0 as a typical average might imply. Hence an even number of beats and misses reflects a poorer season than appearances suggest.
A mix of 48 broker ratings upgrades flowing from results and 62 downgrades corroborates a weak season. However, only once in the history of the Monitor have upgrades exceeded downgrades. The biggest variances occurred in February 2015, when 38 upgrades were met with 118 downgrades. The ASX200 closed that month at 5928 and analysts were calling “overvalued”.
They were right. Six months later the index had fallen to 5207 and in the view of analysts, too far. The August season featured 116 upgrades to 40 downgrades – the only time upgrades have exceeded downgrades. With the average over the period of 62 to 77, this season has seen nothing particularly unusual on the ratings front.
Leading into this season, the index has been stuck in a range. It remained stuck in that range throughout the season and is still stuck in that range. At the end of the season the index sat at 5714. At the end of the February season this year the index sat at 5712.
Rather sums things up really.
While FNArena's Reporting Season Monitor is being compiled with great care and our best endeavours, investors should note that we cannot guarantee that all data and information gathered and on display is 100% accurate at all times. FNArena does not accept any responsibility for errors and omissions that can occur. Investors should always do their own research and consult with a financial expert before making investment decisions. FNArena's Reporting Season Monitor is an informative tool, it does not not contain investment advice and should not be treated as such.
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