Rudi’s Comprehensive August 2023 Review

Feature Stories | Sep 21 2023

A compilation of stories relating to the August 2023 corporate reporting season in Australia, including FNArena’s final balance for the season.

Content (in chronological order of publication):

-Earnings Forecasts: Low Expectations Not Low Enough?
-Conviction Calls & Best Ideas
-Opportunities With A Five Year Horizon
-Company Reports: Early Trends
-Company Reports: Inflation
-Company Reports: Conviction
-Company Reports: Technology Sector
-REITs In Focus
-Awaiting The August Verdict
-Conviction Calls and Best Ideas
-August Results: Early Observations
-Conviction Calls and Best Ideas
-Rudi Interviewed: Have Cash, Can Be Patient
-August Results: Early Observations
-August Signals: Resilience Shines, Forecasts Slide
-Outlook Negative, With Plenty Of Silver Linings
-Conviction Calls & Best Ideas
-August 2023 – Winners & Losers
-Navigating The Post-August Complexities
-Best Ideas and Conviction Calls

By Rudi Filapek-Vandyck, Editor FNArena

Earnings Forecasts: Low Expectations Not Low Enough?

There's no denying, in the slipstream of more resilient economic data and indicators, corporate profits have equally proven to be more resilient in this cycle than many had thought.

In line with a positive share market interpretation of lower bond yields (see above), this has been one of the pillars underneath a supportive share market story year to date in 2023.

In addition, and this in particular applies to the Australian market, analysts' forecasts are low, and falling, suggesting companies only face a low hurdle in order to meet or beat expectations in August. Consensus has the average EPS growth well below average, with negative growth projected for FY24.

But it never is this simple and there is one important reason as to why the bar seems so low for Australian companies this August and for the year ahead: companies are doing it tough and overall conditions are expected to worsen further, before they can start to recover. Central bank tightening works at considerable delay. The local mortgage cliff has only just started to impact. Supply chain bottlenecks are still a recent memory. Inflation is still a negative factor.

In the US corporate profits have fallen by circa -8% on average over the twelve months past, so there is undeniably a visible recession at the corporate level, it's just not apparent from how major indices have performed to date. Then those indices are carried by only a small group of outperformers, with markets underneath characterised by extreme polarisation.

At the very least, such a set-up suggests a one-size-fits-all, generalised approach might not be the appropriate one for equities this time around. Shares that have experienced a big rally this year might require that companies do better than simply meeting expectations, a fact that applies more to the USA than it does for Australia, but history shows there will be winners and losers at either end of the market.

Before we start digging into the finer details for upcoming releases, let's briefly reflect on what occurred earlier this year during the local February reporting period.