Reporting season wrap and outlook – March 2017
This was a good reporting season with market EPS expectations increasing 1.6%, versus the usual average downgrade of -0.9%, the best outcome since 2010. Market EPS is now expected to grow 16% in FY17.
Summary of key findings:
The good results are primarily a result of the turnaround in resources, however the stabilization of earnings in industrials was also a better than the usual outcome.
– Cost control was the key differentiator for industrial companies, with cost discipline compensating for sluggish sales.
– The market saw through lower quality results, where companies delivering poor cash flow or rising capital intensity tended to underperform.
The season lacked particularly strong broad-based ‘themes’, however there were key observations:
1) Top 20 companies outperforming small caps
2) Companies surprising on capital return
3) Strategic responses by companies in disrupted industries showing signs of success
Market performance was reasonably strong across the season but, ironically, resources underperformed despite earnings strength. Banks did well on earnings upgrades, while a fall in US bond yields saw rate sensitive equities do well.
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