Rudy’s View: August 2020, Nothing Like The Past

rudi-views
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 | Aug 06 2020

FNArena’s Corporate Results Monitor is keeping track of company results this month:

https://www.fnarena.com/index.php/reporting_season/

In this week’s Weekly Insights:

-August 2020: Nothing Like The Past
-Morgans Best Ideas

By Rudi Filapek-Vandyck, Editor FNArena

August 2020: Nothing Like The Past

Corporate earnings have not been front of mind for share market investors over the year past.

Last year’s August reporting season marked the weakest performance for corporate Australia since the GFC, yet 5.5 months later the ASX200 surged to an all-time record high of 7162.50.

Meanwhile, in the background of it all, dividend payers in Australia, including the major banks, had already started to reduce nominal payouts.

Corporate reporting in February was fully overshadowed by the realisation that a global pandemic was spreading fast.

Since then we had global lockdowns, social distancing, an accelerated race for a vaccine, treatment or cure, recessions, central banks liquidity and credit support, government safety net programs, and regional virus drawbacks, but no profit warnings as company boards in Australia have been temporarily excused from the legal requirement to keep investors fully informed.

It is probably a fair assessment that August 2020 is taking place amidst the highest level of uncertainty for a very long time.

As to how exactly investors are going to respond to corporate profits and the lack thereof throughout the month ahead is anyone’s guess, especially with so many expert voices proclaiming equities are pricing in too much optimism.

****

The first eight corporate results during the final week of July don’t offer much in terms of blue print. Only one of those eight -Credit Corp ((CCP))- was able to issue earnings guidance for the year ahead.

None of the share prices put in a big rally post event, but several have seen profit-taking and weakness kicking in since, including Credit Corp.

Then again, Credit Corp’s in-line FY20 profit result was no less than -78% below prior guidance, which had been withdrawn in March.

Cimic Group ((CIM)) missed expectations, Emeco Holdings ((EHL)) reported in-line with just about everyone calling the stock undervalued and Rio Tinto ((RIO)) surprised on the upside in what could become the broad context for the commodities sector in general this month.

A cautious Rio Tinto board did not surprise with a bigger-than-expected dividend announcement.

Covid-19 has accelerated the adoption and acceptance of new technologies and trends, further widening the gap between winners and losers in the share market, so it probably shouldn’t surprise online retailer Temple & Webster’s ((TPW)) result was generally well-received.

Again, Temple & Webster shares have seen some profit-taking kicking in post event.

Three of the eight companies have indicated how important government support programs are to their operations and profitability. This too adds to the general uncertainty.

****

Investors will continue their focus on dividend reliability and sustainability, but in many cases they will have to make assessments in the absence of any concrete guidance from the companies themselves.

Realistically, how much can one expect from airports and airlines, for example, whose revenues have been decimated without any insights as to when their operations might “normalise”?

Numbers from the US too confirm more companies prefer not to issue guidance for the year ahead with only circa one-in-four confident enough to do so, and this includes negative adjustments.

I wouldn’t be drawing on too many references from the past this reporting season. It’s a whole new ball game this season, and macro matters remain plenty and all-important.


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