Rudi’s View: February’s Sobering Reality Check

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 | Mar 01 2023

In This week's Weekly Insights:

-February's Sobering Reality Check
-Research To Download

By Rudi Filapek-Vandyck, Editor FNArena

February's Sobering Reality Check

Australian businesses are doing it tough. Maybe the easiest way to back up that statement is via FNArena's Corporate Results Monitor.

By late on Friday, the Monitor had aggregated 241 corporate results of which 31.5% (76 results) had managed to beat expectations and 29.5% (71 results) had failed, with the remaining 39% (94) performing in line.

Price targets on average had increased by 0.23% but in aggregate 241 price targets in total have not moved at all (-0.03%).

Share price-wise, most reports have triggered selling pressure and the major indices are down more than -3.5% for the month on Monday. All it takes from here is one or two negative trading sessions and those sharp gains booked in January will be gone.

If we zoom in on the ASX50, of which a total of 41 members have reported, the numbers look decisively more encouraging; 41.5% (17 companies) have beaten market forecasts and only 26.8% (11 companies) missed the mark. On average, price targets have lifted by 1% with an aggregate increase of 0.93%.

Comparable numbers for the ASX200 look a lot worse. Of the 137 companies reporting to date, which includes the 41 from the ASX50, only 30% (41 companies) released a 'beat' with 33.5% (46 companies) disappointing. While the average price target for the ASX200 has increased by 0.31%, in aggregate targets have gone backwards by -0.21%.

To create a proper framework around those numbers, we first have to acknowledge the trend since 2013 is that February usually allows for a larger percentage of 'beats' in comparison with August. For example: the two previous February result seasons of 2022 and 2021 saw total 'beats' of respectively 43% and 47%.

If that 31.5% of beats this month holds up when the final calculations are made later this week, it will be near the lowest percentage for any February on par with 2020 and 2014 (31%). Both those years were challenging times for the local share market.

Disappointments running at 29.5% is not out of the ordinary. Last year, the percentage was 36%, the year prior only had 13%. This year the percentage in misses is high, though not extraordinary.

What has stopped is that results seasons add meaningfully to corporate valuations and thus to broker price targets, as also signalled last week. Ever since we left calendar year 2021 behind us, corporate results seasons are no longer providing a positive outcome for price targets for individual ASX-listed entities.

Yet, at the beginning of this month, major indices were but a whisker away from setting new all-time record highs. Go figure. Maybe, if we take those 2023 highs as our starting point, maybe then the February results season has provided investors with a reality check?

Like a cold shower on a hot and sweaty mid-summer day?

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