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Australian Equity Reporting Season Overview - August 2019

The recent Australian equities earnings season reflected generally soft conditions and a subdued outlook for Australia’s listed companies. 

12th September 2019 / 3 mins read
Andrew Cassar
Senior Consultant
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The recent Australian equities earnings season reflected generally soft conditions and a subdued outlook for Australia’s listed companies. Headline earnings revisions were very weak, with the 1.9% decline in the ASX200 earnings per share (EPS) estimate the largest scale-back in a results season since February 2009. Moreover, the proportion of stocks by number seeing downgrades across the ASX300 was nearly 70% – the weakest “breadth” for well over five years.
On the final tally, the number of company results beating expectations came in at 25%, behind the misses at 30%. The rate of beats was the second-lowest in the past eight reporting seasons. Remarkably, not one sector managed to deliver a beat rate of more than 50%, with Energy the high-water mark, at 44%.

Highlights:

Revenue: The aggregate revenue for Australian listed companies in FY19 was A$369.1bn, representing a 6.2% decrease against FY18.
CAPEX: The market remains in a capex upgrade cycle, with most sectors seeing increased spend expectations.
Cost Pressures: Having abated somewhat over the July-December 2018 period reported in February 2019, cost pressures re-emerged in the second half of the financial year.
EPS Revisions: The Mid-Cap Index saw particularly sharp negative revisions, with EPS falling 4.8% (for context: ASX200 -1.9% EPS).
The charts prepared below by J.P. Morgan summarise some of the main metrics compared to previous results seasons.
 
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JANA considers the September 2019 reporting season outcomes to be in line with our expectations and our view that Australian equities remain unattractive on a relative basis. Furthermore, JANA reaffirms the following recommendations for Australian equities:

  • Maintain underweight exposure relative to benchmark.
  • Favour quality-focused strategies that pay attention to valuation.
  • Favour active management over passive or enhanced passive.