Reporting Season Feb 2022: Key takeaways
About the author:
- Author name:
- By Tom Sartor
- Job title:
- Senior Analyst
- Date posted:
- 01 March 2022, 10:35 AM
- Sectors Covered:
- Junior (Emerging) Resources, Bulk Materials
- February results were very strong, as we’d flagged was likely. Important large-cap stocks were the stars, beating expectations at a near record rate (37% of the ASX50 beat) with their prices jumping a record amount (+7%) reflecting a flight to quality.
- Outlook statements were cautiously optimistic, trading through Omicron has been stronger than feared, but quantitative guidance is still low.
- +2.6% upward FY22 EPS revisions concentrated in Banks + Financials. Market moves largely reflected a PE de-rating.
- Stronger than expected results aren’t translating into upgraded profit forecasts given a lack of corporate guidance and ongoing sell-side conservatism = The bar for ongoing results will be kept low. Note FY23 forecasts are flat.
- Dividends were a touch below expectations, although several new buybacks launched.
- Strong performance from inflation beneficiaries – Banks, Insurers, Materials, Energy, REITs
- Market rotation into size and quality is ongoing, but not exclusively at the expense of high PE/ growth.
- Opportunities to upgrade portfolio quality on externally driven weakness in coming weeks.
- Updated Shopping list below – Morgans Best Ideas, Equity Model Portfolios updated next week on March 7.
As strong as it gets – Beats & misses
February results surprised at the equal strongest “beat” rate since we began monitoring in 2016. This was helped by conservative market expectations – a feature since the onset of the pandemic – and the fact Australian corporates are in fundamentally strong shape.
Important large-cap stocks helped by relatively stronger market positions and ability to “self-help” were the stars, with 10 of 29 Industrials “Beating” including:
- Commonwealth Bank
- CSL Limited
Best & worst performances since reporting
What did we learn? Result reactions were largely rational, with beats rising an average 5.4% and misses falling 7.3% which is about normal.
The worst responses were dominated by high PE growth stocks, suggesting a further market rotation to quality.
Large caps dominate attention
Large caps (ASX50 cut-off) which beat expectations rose an astonishing 7.1% on result day, versus Ex-ASX50 stock rising 4.9%. ASX50 “Beats” average a 3.8% gain over the last five years so this was a stunning market response, obviously helped by the January sell-down.
Notable ASX50 Beats/ Movers included:
- Treasury Wine Estates (+12%)
- Computershare (+11%)
- Endeavor (+10%)
- Cochlear (+9%)
- CSL Limited (+9%)
- Commonwealth Bank (+6%).
Market valuation (PE) Dispersion
The High PE sell-off which began in January continued through reporting season. Interestingly, valuations for the cheapest stocks in the market haven’t shifted much through this period suggesting the market rotation is into size and quality, more than value necessarily.
This can be seen in activity in the likes of CSL, ResMed, Seek, Treasury Wine Estates, Woolworths, Wesfarmers, Aristocrat Leisure, Lovisa, Corporate Travel Management.
ASX200 Industrials : +2.6% FY22 EPS Revisions
Aggregate (weighted) market EPS forecasts for FY22 enjoyed 2.6% upward revisions across February, inclusive on non-reporting stocks. This was a mixed bag as usual. Revisions ex Banks and Financials were neutral, which doesn’t correlate well with much stronger than expected results.
Clearly, sell-side analysts remain cautious on 2H number given an ongoing reduction in guidance and with new concerns around cost inflation.
Sector FY22 EPS Revisions vs Price and PE revisions
Sector aggregate revisions offer more detail on areas of strength and weakness, and how PE de-ratings drove weaker prices in many sectors rather than EPS downgrades.
Sectors of interest on this analysis include Banks & Financials (EPS momentum, Value), Agriculture (momentum), Online (pure PE de-rate), and Mining services.
Dividends: Percentage of established industrials growing dividends
Dividends was an area which did disappoint slightly overall, with the proportion of Industrials growing their dividend slipping below the pre-pandemic average (67%).
We’re yet to fully reconcile lower dividends versus higher buybacks, but we do note that dividend cuts were seen most among consumer stocks cycling abnormal COVID highs (Wesfarmers, Woolworths, ING, JB Hi-Fi), weather affected insurers (Suncorp, Insurance Australia) or otherwise lower quality cyclicals (Cimic Group, AGL Energy).
Post reporting season shopping list
Contact your Morgans adviser or nearest Morgans office to access this shopping list.
Alternatively, access our global leaders analysis via the button below.
Global leaders update
You can find further detailed analysis of company results this reporting season by browsing our reporting season tag.
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Disclaimer: Analyst may own shares. 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.