Acerca de

The February reporting season revealed corporate outlooks that were, on balance, below expectations. More companies reported results with uncertain guidance or soft outlooks compared to those with positive outlooks or reaffirmed guidance. The market responded emphatically to any lack of confidence expressed by management, possibly exacerbated by the 8% market rally in January.

​

Examples of price declines following the release of company commentary included: AGL Energy (down 11%), Aurizon Holdings (8%), James Hardie Industries (7%), Ansell (8%), CBA (5%), Bluescope (8%), Domino’s Pizza (24%), Downer Group (24%), Qantas (6%) and Harvey Norman (8%).

​

The notable existence of cost inflation failed to dent margins in aggregate. Company price increases and other measures appeared to produce as many instances of margin expansion as there were contractions.

​

A positive feature of the season, and perhaps a more tangible demonstration of corporate confidence, was a significantly larger number of companies raising or maintaining dividends than reducing them.

​

Looking forward, and while not broad based, there is guidance of easing or plateauing inflation in the short term. For example, Fletcher Building is seeing an easing of covid-supply chain challenges. Adelaide Brighton Cement is experiencing subsiding cost pressure, in terms of fuel and transport. Breville is another company witnessing a more benign outlook for inflation in its business. These forces should provide support for margins in the short term.

​

In general terms, the economic outlook is softer for the coming months. A closer look reveals very mixed growth rates across industries.

Infrastructure and commercial construction work are expected to experience solid demand. Compare this to the residential sector where the outlook is weak. Note that REA Group real estate listings were down 34% over the December quarter.

​

Retail demand in car maintenance, camping, sporting and outdoor supplies is expected to remain firm. Similarly, consumers appear to have an insatiable demand for travel following several years of lockdown. Qantas will continue to benefit from such demand. It will also suffer as covid openings bring more aircraft capacity to the market and therefore cheaper airfares.

​

Ansell is expecting weaker demand from its healthcare business for at least six-months and Southern Cross Media noted that businesses were undergoing a subdued recovery in regional areas.

​

Perhaps one of the strongest growth sectors in the coming year will be those companies benefiting from the re-opening of China and the pent-up demand expected to spring from years of covid-zero policy. The miners are likely to benefit from stronger revenues as commodity volumes and prices rise. The Australian education sector is also expected to grow.

​

Working capital levels should gradually decline, especially those companies with offshore businesses. This should free up capital for growth and shareholder returns as businesses become more comfortable with the security of their supply chains post-covid. Brambles is already witnessing this amongst its customer base in the US as more of its pallets return to circulation.