A leading analyst has forecast a bumpy profit season, as companies downgrade their forecasts. Share price reactions have been sharp following ‘negative surprises’.
Macquarie Securities says the industrials sector will be flat, with no overall earnings growth this financial year. The only bright spot in the industrial sector is stocks exposed to the US economy.
“We still expect the US to progress with the expansion phase of the cycle. The Coronavirus may delay the timing but we would still be looking for stocks that benefit from reflation [in the US],” Macquarie says.
Bank earnings are expected to fall by more than 5 per cent this financial year, accompanied by dividend cuts.
Real estate investment trusts with retail exposure are expected to produce weaker earnings. These include Unibail Rodamco Westfield, Stockland Group, Vicinity Centres and Scentre Group.
Resources is expected to be the strongest sector, with growth in for the current financial year of 8.7 per cent.
a2 Milk, BHP and Fortescue are the ASX 100 companies that Macquarie rates “outperform” and which its analysts expect to exceed consensus earnings forecasts.
The ex-100 stocks that meet the same criteria are vehicle fleet management and finance company Eclipx Group, outdoor advertising company OOH!Media, gold miner Silver Lake Resources and oil and gas producer Karoon Energy.
Macquarie lists several ASX 100 stocks that it rates “underperform” and which it expects to produce earnings below consensus forecasts. These include ANZ, Suncorp, IAG, Medibank Private, South32 Ltd and Newcrest.
Ex-100 sells that meet the same criteria include media company HT&E Ltd (formerly APN News & Media), food producer Costa Group, Blackmores, Dacian Gold, Regis Resources and St Barbara Ltd.
Share price reactions have been sharp when there have been negative surprises. On 30 January location data company Nearmap lowered its “annualised contract value” and suffered a big sell off. Its share price fell 30 per cent in a day.
On 20 January online retailer Kogan cut its sales forecast and suffered a similar fate, falling 22 per cent in a day and 38 per cent since then.
Some of the companies that cited bushfires in their downgrades include Apollo Tourism, Beacon, Super Cheap (which owns the BCF and Macpac stores), Mosaic Brands, Ingenia Communities, Aspen, Kangaroo Plantation Timbers and Elders.
A number of insurers have also been hit by the fires, as well as hailstorms. They include Suncorp, IAG, NIB
Other earnings disappointments include wealth management company ClearView reporting that “a significant adverse deterioration in claims”, higher than expected lapses and overall challenging market conditions will have a negative impact on its half-year results.
The company says life insurance claims and lapses are higher, relative to the assumptions it adopted at June 30 last year. New business premiums for the December half are down 35 per cent on the previous corresponding period.
oOH!media reduced its peofit expactations, while also announcing the departure of chef executive Brendon Cook.
Treasury Wine Estates expects its full-year earnings to be bellow guidance, as a result of the impact of higher discounts in the US market.