Four key themes from this reporting season
Despite an uninspiring macroeconomic backdrop, FY14 full year results painted a solid picture of corporate Australia. Our Australian equities team saw a few key themes running through the reporting season.
1. Earnings are becoming more predictable
Average earnings per share grew around 10% for FY14, driven primarily by Resources. This was largely in line with market consensus, which has tempered in recent times in the face of economic headwinds. There is also a degree of realism in the contracting outlook for FY15, as corporate management adopted a generally cautious tone.
2. Companies confirmed their commitment to cost reduction
In FY14, cost reduction drove the lion’s share of earnings, with sales growth only gaining a tepid 2.5% for Industrials. This theme will continue into FY15, as many companies continue restructuring and debt re-financing. The question is – how far can Australian companies cut until they’ve hit bone?
3. Investors are demanding yield
In August, we saw dividends per share up almost 7.0% year-on-year, highlighting another key theme – a focus on shareholder return. Companies which have scaled back capex and scaled up shareholder returns have generally been rewarded with strong performances in recent weeks. Increased dividend payments also suggest that management have confidence in solid cash flows over the next few years.
4. There is no hard evidence we’re in for a bear market
This reporting season should do enough to support the market on the earnings side. While the market may consolidate for a period, a massive correction looks unlikely based on current evidence – especially given that interest rates are unlikely to rise from their historically low levels in the near future. This is, of course, barring some unpredictable exogenous shock.