The 2018 financial year Australian reporting season has now completed. Overall, the results were reasonable albeit FY19 guidance was softer in general.
As usual we did experience a mix of results across the market, there were more beats than misses verse expectations but at the same time there were more downgrades than upgrades.
UBS estimates foresee FY18 earnings growth at around 8 per cent, but due to the softer guidance, FY19 earnings estimates were revised down and expected growth is now at around 5pc (more in line with longer-term trends).
By sectors, the main sectors that delivered positive surprises included gaming, general industrials and mining and metals, while infrastructure operators disappointed. High PE momentum stocks continued to outperform, indicating investor appetite will continue to support stocks exhibiting strong earnings growth.
One of the key themes emerging from this reporting season was cost pressures, especially companies exposed to raw materials and energy consumption. However wage pressure, in aggregate, remains relatively benign.
One of the key themes emerging from this reporting season was cost pressures, especially companies exposed to raw materials and energy consumption.
Notably Magellan Financial Group (MFG) rose 17.3pc and was the best performer for the portfolio over the reporting season. MFG reported a solid FY18 result, supported by strong management and performance fees. Adjusted NPAT of $268.9 million was above consensus and UBS estimates, up 37pc on previous corresponding period, and is expected to deliver double digit profit growth in FY19 with a lower cost base.
The key positive surprise was their new payout policy. The board has revised their dividend policy to increase the payout ratio to 90-95pc of funds management profit after tax from 75-80pc, an increase of around 20pc going forward.
AGL Energy (AGL) was one of those stocks that reported an outstanding FY18 result but disappointed the market in terms of outlook guidance. FY19 guidance was subdued and the company expects underlying profit after tax of $970m-$1,070m (subject to normal trading conditions).
The FY19 guidance implies soft growth, approximately 1pc at mid-point. AGL will face peak wholesale market earnings as electricity prices begin to decline and competition impacts customer markets. AGL ended down 2.6pc.
Tabcorp (TAH) was one of the companies that saw a decline in dividend. FY18 was a transitioning year for TAH given the major acquisition of Tatts.
We believe FY19 will be a more constructive year for the company as TAH beds down the acquisition and is helped by a number of reforms.
These reforms include a point of consumption tax being implemented across most states, the prohibition of synthetic lottery products, advertising restrictions and improved consumer protection measures which have previously benefited corporate bookmakers.
In addition, the exit of a number of loss making businesses (Sun Bets in the UK and Luxbet closure) and technology and digitisation roll-out are all positives for the company. Dividend growth is expected from FY19 onwards.
- This article does not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before acting on any advice contained in this article, you should assess whether it is appropriate in light of your own financial circumstances or contact your financial adviser. Christopher Hindmarsh is an adviser at JBWere Limited. JBWere Limited is owned by National Australia Bank Limited.
