Rudi’s Comprehensive February 2021 Review

Feature Stories | Mar 26 2021

The story below is a compilation of stories relating to the February 2021corporate reporting season in Australia, published between late January and early March. Attached is FNArena's final balance for the season.

Content (lined up in order of publishing dates):

-Corporate Reports To Provide (Some) Answers
-February: Reason For Optimism
-Pre-Season Conviction Calls
-2021, The Year Of Earnings Recovery
-February Is Feeding Market Optimism
-February: Early Days, Full Of promise
-A Different Environment For Dividends
-February 2021: Banks Are Back!
-A Supercycle In Dividends
-Best Set Of Numbers In A Decade
-The Market Is A Duck Pond
-When Gold Meets Its Master
-Bond Yields Won't Rise Forever
-A February For The Record Books

By Rudi Filapek-Vandyck, Editor FNArena

Corporate Reports To Provide (Some) Answers

As per standard practice, the upcoming reporting seasons in the US and here in Australia next month (February) might reveal various timely insights for investors. Though it is likely market optimism regarding Australian housing markets, including construction and building materials, and consumer spending will over-rule minor operational hiccups in February and March if companies are leveraged to those favourable themes.

Though investors always look towards reporting seasons to provide both health checks and insights about new and upcoming trends, in past years broad share market trends have predominantly been determined by the macro-picture, often in contravention to specific outcomes during February and August reporting seasons in Australia.

February: Reason For Optimism

The in-between earnings season running from September until late December might have already given away the big surprise awaiting investors in February, but general optimism among analysts and professionals has been building that corporate results are likely to come in the form of more beats than misses, and with the need for increased forecasts continuing to fuel investor optimism.

All shall be revealed over the next four weeks, of course. And suffice to say: there will still be the occasional shocker that triggers a serious shellacking of the share price.

What is markedly different this time around is analysts are continuously upgrading their forecasts. If this is not triggered by rising commodity prices or by improving sector prospects, it is being triggered by corporate market updates. Think discretionary retailers. Think financial platforms. Think Buy Now, Pay Later service providers.

Ord Minnett Senior Investment Analyst Sze Chuah reports this big shift in market dynamics has led to market consensus for FY21 growth in earnings per share (EPS) to lift from a negative -2.2% to a positive average of 11%. Note: this average has predominantly been carried higher by banks and resources companies, but irrespectively the trend and investor optimism are very palpable.

At least until hedge funds in the US quickly turned into forced sellers of large cap equities

Ord Minnett has lined up its favourites for a positive surprise in February: CommBank ((CBA)), Rio Tinto ((RIO)), Amcor ((AMC)), James Hardie ((JHX)), Vocus Group ((VOC)), and Sonic Healthcare ((SHL)).

Candidates likely to disappoint include Crown Resorts ((CWN)), Flight Centre ((FLT)), Qantas ((QAN)), and Sydney Airport ((SYD)), predicts the broker. Travel restrictions have remained in place, hence.

Do note: if current market forecasts prove correct and the average EPS in Australia has declined by -19.5% in FY20, and FY21 will see a rebound in the order of 11%, this still implies overall profits remain well below FY19 level, and the market will need at least another year to fully catch up with the losses incurred by the global pandemic.

Sze Chuah doesn't think it's unreasonable to expect the -19.5% for FY20 will be recouped in the following two or three years.

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