Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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Reporting season likely to leave questions unanswered

The ASX 200 has rebounded a powerful 32% from the March trough of the COVID-19 bear market. But the rebound has not been helped by earnings growth, with consensus 12-month forward earnings estimates for the ASX 200 index down 20% from pre-COVID-19 levels. Indeed, earnings momentum is very negative at -25% YoY, well below the US and Emerging Markets at -17% YoY.

EL&C Baillieu analysts’ bottom-up estimates forecast a 24% decline in FY20 earnings, followed by partial recoveries of +12% YoY in FY21 and +8% YoY in FY22. Earnings revision trends have improved materially since troughing in March-April, with positive revisions outweighing negative revisions since mid-June.

Consistent with this improving trend, company announcements have generally been positive since June – on our count, 26 positive to 11 negative, particularly in the consumer discretionary and materials sectors. In our view, these are the sectors offering most upside risk this reporting season.

At an industry level, trends are widely divergent. On the positive side, hard goods retail sales have been strong and Australian commodity prices unusually resilient, whilst private credit growth has moved sideways and new home sales appear to have troughed. On the negative side, travel-related indicators are extremely weak, as are clothing retail sales and pricing power, whilst health services pricing power has fallen to record lows.

Looking ahead, with heightened uncertainty about second waves and potential policy errors on the back of Victoria’s lockdown, companies seem unlikely to provide earnings guidance and outlooks this reporting season.

Download the Full Report below for what to expect moving forward.

 

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