Australian companies have delivered a reasonable reporting season against a highly uncertain operating backdrop.
On our count, earnings beats exceeded misses by 4:3 – a narrower result than what we have seen in the past two result seasons. A similar trend has been witnessed in the offshore result season through February. The size of the average beat was <1% at an earnings level.
Importantly for the market overall, earnings estimates for FY22E have been upgraded by 2% over February. Cyclical sectors of energy, financials, materials, and media impressed the most in terms of positive EPS revisions, reflecting a similar pattern to what we saw in January. Market earnings growth for FY22E now stands at 14%, up from 12% at the end of January.
Price performance also implied that the Australian results season was reasonable. Our market outperformed global equities during February by 4.5%.
Outlook comments tended to be reasonable, as companies in many sectors expected COVID conditions to normalise, allowing for reopening trends to improve into the middle of the year.
Despite the threats posed by higher labour costs and supply chains, profit margins are expected to hold up in FY22E. Companies remained confident for the most part that pricing pressures could be offset by further passing of costs onto consumers.
However, for the most part, global events overshadowed the local earnings season. The prospect of a rise in US interest rates later this month and the outbreak of war in Ukraine had a more significant influence on prices. We look at what’s driving this performance and share the changes we’ve made to the Wilsons Australian Equity Focus List against this backdrop.
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John is a leading investment strategist with 20 years experience.