Rudi’s View: A February Full Of Promise

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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 12 2021

In Part II of this week's Weekly Insights:

-A February Full Of Promise
-Dividends Are Back
-Strong, Stronger & Strongest - Consumer Stocks
-Winners & Losers (Forecast)
-Engineers & Contractors
-Healthcare: Same Old
-Fund Managers: Go With The Flow
-Peak Oil, Just Not Now
-Conviction Calls
-FNArena Webinar (recordings available)

By Rudi Filapek-Vandyck, Editor FNArena

A February Full Of Promise

There are multiple ways in which one can look at progress and events.

One angle, popular among economists, is through the lense of: economies are still so far off from trend lines shattered by last year's pandemic, it'll take another 18 months, if not longer, before economies are back on trend, and risks remain in the mean time.

The other angle is: companies are recovering much quicker than anticipated, with most corporate results beating forecasts hand over fist. The latter is how financial markets operate, and thus, in my humble view, the correct way to view this year's corporate market updates.

Meanwhile, it's good to keep in mind that corporate profits, while recovering strongly, will need another year of strong growth, and then maybe the majority of corporate profits in Australia might be back where they were in 2019.

Back to reported results versus forecasts, and here the early signals are suggesting February 2021 might just churn out the best corporate performance since coming out of the GST more than a decade ago. It's probably no coincidence, this year equally marks a comeback post global recession, just as it was back then.

On Monday, the FNArena Monitor of corporate results showed no less than 70% of reports was beating expectations. By Wednesday, this number had accumulated to 75% of "beats". On Thursday we saw a retreat to 64.7%, but only one company had released a fresh disappointing clear market "miss"; Cimic Group ((CIM)).

The retreat on Thursday points at two key factors: it's early days still, and the number of reports will become a lot larger during the final two weeks of the February season, plus a number of companies -ALE Property ((LEP)), Alliance Aviation ((AQZ)), Computershare ((CPU)), Insurance Australia Group ((IAG)) and Megaport ((MP1))- might still have reported strongly, they did not "beat" what had already been anticipated.

Thus far, the number of companies that missed market expectations doesn't exceed four, or 11.8% out of 34 corporate reports in total. Again, it has to be emphasised the numbers are low, the season overall is still young, but the early statistics look as good as they've ever looked over the past ten years.

This, of course, raises a few extra questions about the few companies that could not stay with the trend this month. Cimic Group has been in disarray for quite a while now, and management at Challenger ((CGF)) is equally familiar with the term "struggle". Analysts had been warning about rising risks for BWP Trust ((BWP)) for a while, and they still are.

Maybe the one that stands out in this small group is online retailer Temple & Webster ((TPW)). Each one of the previous three management teams would give their right arm to achieve the kind of growth that Temple & Webster reported early in February, it's just that analysts had expected more, and this has weighed down the share price.

Of more importance is that AGL Energy ((AGL)), after first issuing a profit warning, still managed to disappoint on Thursday, while tired and worn-out AMP ((AMP)) announced its US-based suitor ARES is no longer interested, and Unibail-Rodamco-Westfield ((URW)) declared shareholders should not expect to see a return of dividends before FY23.

These latter disappointments are not yet incorporated in the mentioned statistics, but they will be included on Friday. I understand earnings season in Europe is equally surprising to the upside, as has been the case in the USA.

Investors will be hoping the early trend of more positive news than negative disappointments will continue for the remainder of February.

FNArena's Corporate Results Monitor is updated daily: https://www.fnarena.com/index.php/reporting_season/ (with archive stretching back to August 2013 for paying subscribers).



Dividends Are Back

As pointed out in Part I on Monday, earnings seasons in 2021 should see the return of dividends in Australia; in many cases much quicker, and much stronger than thought possible only a few months ago.

FNArena's newest team member, Mark Story, has written with more depth and details about this, and those investors interested in how to best play the recovery in Australian dividends should definitely read his story:

https://www.fnarena.com/index.php/2021/02/10/the-understated-comeback-of-aussie-dividends/

We also published this story containing plenty of food for thought:

https://www.fnarena.com/index.php/2021/02/11/it-will-get-worse-before-it-gets-better/


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