Feature Stories | Mar 16 2018
Download related file: FNArena-Reporting-Season-Monitor-Feb-2018
This final Monitor and performance summary for the February 2018 result season was first published for subscribers on March 7 and is now open for general readership.
With the February result season now complete in 2018, the FNArena Result Season Monitor, which has been building throughout the month, is now complete and published here in its final form (see attached pdf).
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, 119 companies beat expectations and 80 missed expectations, for a percentage ratio of 37/25 or 1.5 beats to misses. The simple average of all resultant target price changes came in at a net 4.3% gain. In response to results, brokers made 87 ratings upgrades and 54 ratings downgrades, or a ratio of 1.6 to 1 upgrades to downgrades.
The first FNArena Reporting Season Monitor was published in the August season of 2013. Assessing comparative measures on a net basis leaves us with the conclusion that this season has been the most successful to date. See table:
This season saw results exceed the average over that period in all of beats to misses, broker upgrades to downgrades and subsequent target price adjustment. That has not happened before, since August 2013.
It is only the second time in the period that broker upgrades have exceeded downgrades. The last time was in the August season of 2015, which also produced a beat/miss ratio of 1.5. But those two seasons are otherwise starkly different.
From the beginning of February to the end of August of 2015 the ASX200 fell -18%. It was the year in which commodity prices tanked and banks came under significant pressure from ongoing global fallout from the GFC. By the time results season rolled around in August, analysts were calling the market “oversold”. This was reflected in a broker upgrade/downgrade ratio of a standout 2.9.
From the end of August 2017 to the beginning of February 2018 the ASX200 rallied 8%. The month of February was a different matter, but that was due to the macro influence of Wall Street’s inflation-related mini-crash, rather than any micro influence of individual earnings results. The point here is the market was in rally mode, but still brokers responded with more upgrades than downgrades, and upgraded net target prices by more than average.
In other words, despite the rally into this season, analysts did not see the market, as a whole, as “overbought”.
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. But a ratio of 1.5 for this season matches the second highest over the period.
The success of this season was corroborated by data released yesterday by the ABS, noting Australian pre-tax company profits (all companies, not just ASX-listed) rose 19% in the December quarter over the September quarter to mark the second biggest quarterly gain on record.
Alas, the sad reality is that in 2017, the S&P500 rallied 20%. The ASX200 rallied 7%. In January most market commentators saw Wall Street as overbought, and welcomed the early February correction. As our result season assessment suggests, the Australian market was not overbought. Yet we had to plunge in concert with Wall Street, albeit not by quite as much.
On October 1, 2007, the S&P500 peaked at 1468, ahead of the GFC. On the same day, the ASX200 peaked at 6754. Wall Street is now 85% higher. The Australian market is -12% lower.
The Australian market would need to rally 13% from here to even reach its pre-GFC peak. Had the ASX200 followed the S&P500 in lock-step from October 2007 to today, it would be close to 12500.
The good news, at least, is these numbers do not include dividends.
Each day of the Australian corporate reporting season, FNArena provides a summary of broker responses to the previous day's profit result releases from companies under coverage. Readers are reminded that it matters not what actual profit/loss result is posted by each company but by how much that result exceeded/fell short of stock analysts' consensus forecasts. Stock price movements on the day of release, and in many cases for the months following the release, will often be determined by the extent of "beats" and "misses" of underlying earnings as well as company guidance and analyst/management outlook.
A rolling summary table is updated in real time each day on the FNArena website and will build as the season progresses. Additions are made each day, consistent with releases dates, and stocks will then be listed in alphabetical order for ease of use until the full picture of the reporting season emerges.
Note that companies assessed include only those covered by the eight major stockbrokers in the FNArena database and that ratings changes and targets are those provided only by the database brokers.
Note also that “beat” and “miss” assessments are open to an element of subjectivity and not simply a result-versus-consensus-forecast comparison. Mitigating factors include one-off items, top line versus bottom line relevance, forward guidance as an important consideration and so forth. In many cases “profit” per se is not the most relevant performance indicator.
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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