The ASX 200 remains robust, trading just below its record high and on an unusually high forward PE of ~16.5x, ~14% above average. But the earnings picture looks very different, with the trends of the FY19 reporting season – where earnings fell ~2% YoY – appearing to continue into the AGM season.

Themes of this AGM season appear to be anaemic top-line growth, elusive pricing power and generally cautious outlooks, though some companies expect a 2H upturn. Economic indicators in 3Q19 are also subdued.

Whilst still inconclusive, to-date the rate and tax cuts have gained little traction outside the established property market. Unless this changes, we expect flat profits in FY20, well below consensus estimates of ~11% YoY growth.

Key sector trends from this AGM season include:

– Gaming – casinos top-line growth a sluggish 2% YoY, or lower.

– Industrials – weak activity, with flat-to-lower volumes and domestic pricing pressure in airlines. By contrast, Brambles had a better quarter.

– Retail – mixed, but generally sluggish, with increased promotional activity noted by Super Cheap and Kathmandu. JB Hi-Fi outperformed, again.

– Property – signs of some improvement in residential noted by Stockland and Mirvac. Retail mall sales growth has generally remained sluggish around 2-2.5% YoY

– Materials and Energy – profit pressure from falling prices, be it fertilisers, graphite or coal, as well as some production problems.

– Financials – increased customer remediation from the major banks, but elsewhere soft income and fund outflows.

Investment implications: Sluggish growth implies flat profits in FY20, well below consensus estimates for ~11% YoY growth. If so, forecasts of profit rebounds for the banks, industrials and consumer sectors seem aggressive.

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