Monthly economic e-news – March 2018
15 March 2018
LGS CIO, Craig Turnbull, reviews the recent corporate reporting season and what some of the results may mean for the economy over the short to medium term.
By Craig Turnbull
Chief Investment Officer
Reporting season delivers some good news for investors
The February corporate reporting season recently wrapped up and the consensus among market analysts was that the season was generally positive. A major factor was the number of companies announcing better-than-expected dividend payments.
However, any gains on the ASX 200 as a result of the reporting season were undercut by the sharp correction that swept across global markets in early February.
Source: Yahoo Finance
Some of the usual suspects perform well again
The performance of the big miners dominated the previous reporting season in August last year, and it’s a very similar story this time around.
Rio Tinto’s full-year underlying earnings rose 69% to US$8.6 billion on the back of stronger commodity prices and the completion of a US$2 billion cost-saving programme. Investors were pleased with a final dividend of US$1.80, up 44% on the previous year, and the announcement of an additional US$1 billion buy-back of its London-listed shares.
BHP’s half-year underlying profit was up 25% to US$4.05 billion but this was below market expectations mainly due to costs resulting from a change in US corporate tax rates. However, investors still benefited from a 38% rise in the interim dividend to US$0.55.
The A2 Milk Company now claims to over 5% share of the infant formula consumption market in China, and this has sent the half-year net profit after tax soaring to NZ$98.5 million, an increase of 150% in just twelve months.
Some of the other companies to record strong results included Qantas, Origin Energy, Brambles, CSL, IAG and AMP.
Other companies announced more mixed results
A number of companies announced solid profits but market analysts were keen to pinpoint certain aspects which may have an impact on future earnings.
The Commonwealth Bank reported a half-year statutory net profit of $4.89 billion, up 1.2%, however cash earnings per share were down 3.2%, and the dividend was relatively flat at $2.00. While the core business is strong, the bank remains hampered by a series of scandals, and is setting aside more than $500 million to deal with the AUSTRAC money laundering allegations.
Retailers have struggled in recent years but JB Hi-Fi has continued to perform well with their half-year net profit after tax rising 37% to $151 million, and a fatter dividend for shareholders, up 19% to $0.86. However, while total sales are up 41%, increasing competition and the focus on growing market share has shrunk margins, particularly in New Zealand, and in the recently acquired chain of Good Guys stores.
Domino’s Pizza reported a 17.4% jump in net profit after tax, up to $58.7 million, but declining revenues in Japan, and a downgrade in growth forecasts have not escaped the scrutiny of market commentators.
These results underline the need for investors to look beyond the headline figures when assessing a company’s performance.
What do these results say about the outlook for the economy?
Strong company profits and more generous dividends are great for investors but they are also a good sign that the economy is improving.
Another positive sign was the latest figure for our seasonally-adjusted international trade balance which swung back to a surplus of $1.05 billion in January on the back of higher resources exports.
However, all eyes now remain on the US and the potential impact that the new tariffs on imported steel may have on our iron ore exports to China.
Markets at a glance
for the month ending 28 February 2018
Australian shares1 up by 0.36%
Australian Government Bonds yield2 down to 2.810%
Australian dollar down to US$0.7792
Cash rate3 steady at 1.50%
International shares4 down by 4.31%
1 ASX 200 Accumulation Index
2 Yield on 10 year Australian Government Bonds
3 RBA cash rate
4 MSCI – World ex Australia (USD)