Australia Strategy: Catalyst season

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
18 October 2021, 8:30 AM
Sectors Covered:
Equity Strategy and Quant

  • In our Reporting Season Review we identified the upcoming AGM period as a critical turning point for earnings certainty as it coincides with the reopening of Australia’s most populous cities Sydney and Melbourne.
  • At the August results only 16% of companies provided quantitative guidance and many erred on the side of caution in giving outlook commentary. We think the upcoming trading updates and potential first-time guidance will provide plenty of trading opportunities for investors.
  • We identify 23 stocks with material upcoming catalysts, with notable opportunities in highly rated names including Corporate Travel (ASX:CTD), Reliance Worldwide (ASX:RWC), Tyro Payments (ASX:TYR) and Lovisa (ASX:LOV).

Keeping a foothold on our cyclical tilt

Uncertainty from COVID-19 restrictions in August resulted in analysts taking a conservative approach to medium-term earnings estimates (FY23 and beyond), as has been the case since the onset of the pandemic.

We think this dynamic will ultimately lead to upgraded forecasts as the path out becomes clear during the upcoming AGM period. Key to our pro-cyclical call is: 1) broad cross-section of strong FY22 earnings growth; 2) cyclical valuations sit near the 5-year average; and 3) medium-term earnings forecasts remain unchanged over the past 12 months.

The upbeat prospects for the recovery coupled with significant pent-up demand has seen us maintain a pro-risk bias. Our Asset Allocation Update Q4 2021 details our overweight exposure to equities.

Favourable conditions for the Ag/Chemical reporting season

The sector is on track to enjoy another bumper grain crop, which would continue to support the listed farm input companies, processors, and producers. With strong crops, high soft commodity prices, the AUD falling again and low interest rates, everything appears to be heading in the right direction for the Australian agricultural/chemical industry.

We highlight ag/chemical exposures we think could surprise at the upcoming results including: Nufarm (capital management & outlook), Graincorp (capital management & outlook), Incitec Pivot (operational update + strong realised prices), United Malt (US/UK reopening upside + outlook).

Upcoming catalysts

On pages 2-3 the Morgans Research team identifies 23 upcoming stock catalysts which could drive positive share price responses. Notable stocks with positive upcoming catalysts which also reside in our Morgans Best ideas or Equity Model portfolios include Corporate Travel (ASX:CTD), Lovisa (ASX:LOV), Graincorp (ASX:GNC), Reliance Worldwide (ASX:RWC), Tyro Payments (ASX:TYR), and Universal Store (ASX:UNI).

 

Figure 1: ASX 200 cyclicals – analyst forecast uncertainty at five-year high

Growth stocks have had a choppy ride since the onset of the pandemic

Source: Morgans Financial, IBES by Refinitiv

Find out more

Download full research note

If you would like more information, consider reading Australia Strategy: Global Leaders Update. In this edition, we update our asset allocation settings, outline what the economic restart means for key industries, discuss why bond yield must go up and more.

Otherwise, please contact your adviser or nearest Morgans office.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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