The upcoming reporting season is expected to be more predictable than 2009 with research house and fund manager, Lincoln Indicators, saying the script can almost be written now: “Australian operations good, overseas operations (excluding Asia) bad. We are still on track with guidance and can’t wait for 2011.”
“We expect the balance of earnings results to be spread evenly of those that surprise on the upside versus those on the downside,” said Lincoln CEO, Elio D’Amato.
“This is in contrast to 12 months ago where sentiment was so weak, a heart-beat was sufficient to surpass market expectations. Once again, companies will have to be measured by their merits to determine their long term potential.”
Twelve months on from what Lincoln termed ‘the most important reporting season in 70 years’ and which ultimately formed the supporting foundation for the bottom in March 2009, the good news is that this reporting season will form the platform for continued market growth.
The major economic focus for market participants will be interest rates, a symptom of Australia’s ability to buck the global recessionary trend. The possible threat of inflation will see the Reserve Bank of Australia (RBA) remove its stimulatory bias and return rates to more normal levels. Therefore it is the companies which were unable to put behind them their debt issues which are likely to still be a concern for investors.
Mr D’Amato offers several key insights into what investors expect in the February 2010 reporting season:
• There will be surprises to both the upside and downside
• It should form the platform for continued growth in the sharemarket
• Mining stocks are expected to do well
• Expected upgrades to the banking sector are set to continue
• Look for the first few retailers to report as a gauge for the health of the Australian consumer
• Be wary of stocks with high PEs which have future earnings emphasised into their current price
• Look for stocks that produce great results, but fall below expectations. This will create the opportunity.
“We expect the mining sector to have a very strong reporting period. With strengthening quarterly sales numbers announced in quarterly production reports this month, these businesses have benefited from the rising commodity prices and we expect that these results will be reflected with broadly improving results this period.”
“With the CBA’s (Commonwealth Bank of Australia) guidance to market coming in above expectations, sentiment across the board is positive.”
From a Financial Health perspective, Lincoln sees a key challenge around the sources of financing, particularly for companies outside the top 100. This issue is not likely to surface within the next 12 months as equity markets have proven once again to be a lifeline for a number of cash-strapped businesses that were in deep trouble, but went to the well and the market provided much needed capital.
“The market will throw up opportunities. It always does. This time around we expect to see opportunities in companies which fail to meet analyst expectations, but still produce great results. This short term volatility creates the longer term opportunity”, Mr D’Amato said.
- ends more -
Tips for the retail investor to manage the reporting period
With approximately 2,000 companies listed on the ASX, it is impossible for investors to critically assess each company individually. It is prudent to implement and follow a plan to approach the reporting season, and to prepare for this, Lincoln offers the following guidelines for retail investors:
Research the companies in your portfolio prior to the report:
1. Read the company’s latest announcements and visit their website to view any recent business developments.
2. Consider calling your broker to discuss the company or search the internet for any news produced by a third party, such as past news articles.
3. Look at the industry it operates in. Is the outlook positive or are there any cost pressures, underperforming businesses or negative sentiment going into 2010?
4. Look at some of the companies’ major competitors. Read their announcements in order to help formulate an opinion as to whether the business environment in which they operate in is buoyant.
5. Read the daily business pages in order to keep up to date with all current events, including any information that may require you to change your original evaluation.
Reassess your portfolio after the report:
1. Read the company’s result. Did the company produce a profit? Did it improve its EPS? Did the company’s level of growth meet your expectations?
2. Read the Director’s comments that accompany the result. Did they meet their own expectations? What type of outlook do they put forward for the company? What is their opinion of the current trading environment?
3. Read the reaction to the result in the press or by your broker. If it is a large blue-chip company then you will be able to gauge overall sentiment via comments made by various parties.
4. View the share price reaction. This can be tricky, as often the first reaction will tend to be an over-reaction. Look for a trading pattern to develop.
Evaluate potential stocks to add to your portfolio:
1. Create a watch list of companies you may be interested in buying but do not currently hold. This process can start by selecting a group of companies based on broker recommendations, that may have been covered in the paper or seen on TV, or had mentioned to you via other sources.
2. Once a list of ‘potentials’ is derived, do some background reading. Investigate the industry it is in, read recent announcements and develop a firm understanding of what the business does. This will cut down on the decision-making time when the result is released, as a large part of the research would have already been completed.
3. Once the result is released look at the level of growth achieved. Then apply similar criteria as done when re-evaluating your portfolio, ensuring that growth targets were met and that the outlook was positive.
4. If they meet the criteria then an investor may consider adding them to their portfolio. If not, then move on.
5. Of course there may be a result from a company that was not on the investor’s radar originally, but has caught their attention. If this is the case, then an investor should look behind the headline and go through all the previous steps to determine if the interest in this company is warranted.
Staying fully informed, making educated decisions to ensure that your share portfolio continues to perform and achieves its investment goals. This is no more relevant than at reporting season.
Lincoln is Australia’s leading fundamental analysis research house and fund manager offering intelligent sharemarket solutions for the conscientious investor. Founded in 1984 by Melbourne University academic and Australian Olympian Dr Merv Lincoln, the company’s specialist knowledge is based on Dr Lincoln’s PhD thesis which analysed and derived models to assess the financial health of businesses. The resulting Lincoln methodology combines company health assessment, key accounting ratios and other quantitative and qualitative measures to identify well-managed companies with strong growth prospects. Stock Doctor, the software-based incarnation of Dr Lincoln’s approach, was introduced to Australian investors in 1996 and has proven itself over more than decade of sharemarket conditions.
In 2003 Lincoln established its Managed Investments business to allow investors to experience the company’s distinct investment methodology through a professionally managed portfolio. In 2007 the Lincoln Australian Share Fund was opened to retail investors, with the Fund offering two classes of units: wholesale and retail. The launch of the Lincoln Retail Australian Share Fund has since broadened the reach of Lincoln’s methodology even further. Today, the Fund has grown organically to around A$124 million in funds under management as at 31 December 2009.
For more information visit www.lincolnindicators.com.au or call 1300 676 332.
Lincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740.
This information is current as at 20 January 2010.
This communication is for educational purposes but may contain general product advice. The advice has been prepared without taking into account your personal circumstances. You should therefore consider the appropriateness of the advice in light of your objections, financial situation and needs, before acting on it. Investments can go up and down. Past performance is not a reliable indicator of future performance. Lincoln Indicators Pty Ltd, its director, its employees and/or its associates may hold interests in any stocks mentioned in this communication. This position could change at any time without notice.
Responsible Entity of the Fund: Equity Trustees Limited ABN 46 004 031 298, AFSL 240975. Portfolio holdings and sector allocations are subject to change without notice. This communication contains general information only. It has been prepared without taking into account the objectives, financial situation or needs of any individual investor. As a result, you should consider its appropriateness in regard to your particular objectives, financial situation and needs. You should also consider obtaining your own independent advice before making any financial decisions. It should be read in conjunction with the Product Disclosure Statement (PDS) of the Lincoln Australian Share Fund; which can be obtained by contacting Lincoln on 1300 676 332, or via our website www.lincolnindicators.com.au. You should read and consider the PDS before making any decision about whether to acquire or continue to hold the product. Applications to acquire units can only be made on an Application Form attached to a current PDS.
Indices data source: ASX-listed company data is copyright and provided by Morningstar Australasia Pty Ltd (‘Morningstar’) © 2009 ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc). All rights reserved. The data and content contained herein are not guaranteed to be accurate, complete or timely. Neither Morningstar, nor its affiliates nor their content providers will have any liability for use or distribution of any of this information. To the extent that any of this information constitutes advice, it is general advice that has been prepared by Morningstar without reference to your objectives, financial situation or needs. Before acting, you should consider the appropriateness of the advice and obtain financial, legal and taxation advice before making any financial investment decision. Investors should obtain the relevant product disclosure statement and consider it before making any decision to invest. Please refer to our Financial Services Guide (FSG) for more information www.morningstar.com.au/fsg.asp. Some of the material provided is published under licence from ASX Operations Pty Limited ACN 004 523 782 (‘ASXO’). Consensus forecast data is copyright Thomson Financial.
Economic and other information taken into account in forming any opinions are subject to change and therefore opinions expressed as to future matters may no longer be reliable. Lincoln Indicators Pty Ltd, its director, employees and agents, makes no representation and gives no warranty as to the accuracy, reliability and completeness or suitability of the information contained in this communication and do not accept any responsibility for any errors, or inaccuracies in, or omissions from this communication; and shall not be liable for any loss or damage howsoever arising (including by reason of negligence or otherwise) as a result of any person acting or refraining from acting in reliance on any information contained herein. No reader should rely on this media release communication, as it does not purport to be comprehensive or to render personal advice. This disclaimer does not purport to exclude any warranties implied by law that may not be lawfully excluded.
Leanne Henderson, Chief Operating Officer, Lincoln
P: (03) 9854 9444
M: 0414 965 661
BlueChip Communication is Australia's leading financial services communications firm.
BlueChip helps tell your story so that the people who matter most want to do business with you. You can select as much - or as little - as you need of our industry knowledge and business communication expertise. The bottom line? Better business results because you're better able to reach and influence your investors, staff and current clients to prospects, media and channel partners.
P: 02 9018 8600
M: 0404 349 348