February Reports: Early Resilience & Big Disappointments

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Feb 21 2019

In this week's Weekly Insights:

-February Reports: Early Resilience & Big Disappointments
-Share Market Outlook: Support & Threats
-CSLChallenge: Business As Usual
-Rudi On TV
-Rudi On Tour


February Reports: Early Resilience & Big Disappointments

By Rudi Filapek-Vandyck, Editor FNArena

Late in January, I had an inkling we might be staring at an unusually savage reporting season locally throughout February.

My concern stemmed from the way investors had responded to early "misses" from the likes of ResMed ((RMD)) and GUD Holdings ((GUD)); it was immediate, harsh and merciless.

Every reporting season generates winners and losers, based upon "beats" and "misses" derived from corporate financials, but this time around share markets have gone through a wild rollercoaster ride, economic data are weak, and weakening, central bankers are reviewing their policy stance, and profit forecasts have been steadily sliding downwards for months.

Judging from the first 100-odd companies in the FNArena universe having reported their financial numbers thus far this month, it would appear the news to date is less bad than feared, if we measure total "beats" versus "misses" or we concentrate on the fact most companies have stuck by a relatively optimistic guidance for the full year.

But market forecasts ex-resources are still steadily sliding south and, on my observation, many companies that release financial reports experience downward pressure on the share price. If not on day one, then most likely in the days following the results release. Surely many an investor -both professionals and retail- has been wondering just how hard it is to successfully maneuver the ins and outs of February this year?

In terms of stockbroker ratings, the bias is very much weighted towards downgrades in recommendations. Total downgrades for the season thus far stand at 44 versus 14 upgrades, and these do not include many more that are not directly related to financial results released.

On Tuesday, when I write these sentences, total tally for the day is seven downgrades against one upgrade to Hold (!). At least on Monday, the balance was three against three (this is an exception though).

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As far as "winners" are concerned, companies including Magellan Financial ((MFG)), IDP Education ((IEL)), Cleanaway Waste Management ((CWY)), Goodman Group ((GMG)), Breville Group ((BRG)), and Altium ((ALU)) have proven that, this time around, they are not impacted by weak conditions and shaky confidence, instead showing off internal resilience and strong growth numbers, leaving both analysts and shorters scrambling to catch up post result.

Each of these companies will feature prominently on the short list of quality positive surprises at the end of the season.

On the other end, the list of negative surprises is already quite a long one, and growing by the day. Today, Tuesday 19 February, share prices for Blackmores ((BKL)) and Emeco Holdings ((EHL)) are both down in excess of -20%. Yesterday, a profit warning from Bingo Industries ((BIN)) caused that share price to fall by -49%.

Investors have equally not been kind to regional lenders Bendigo and Adelaide Bank ((BEN)) and Bank of Queensland ((BOQ)); the latter issued a trading update, Helloworld ((HLO)), Smartgroup Corp ((SIQ)), Bapcor ((BAP)), Automotive Holdings ((AHG)), Carsales ((CAR)), Challenger ((CGF)), Praemium ((PPS)), and numerous others.

While Healius ((HLS)) proved you can put a different name on a perennially disappointing business, but the underlying operations will still keep issuing profit warnings. Pact Group ((PGH)), can you imagine, has issued its sixth profit warning since May 2017, its second over the past three months.


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