Macro and Australian equity strategist, Macro Strategy Advisors

Shane Lee

Macro and Australian equity strategist

Macro Strategy Advisors

Thematic (Sector/Industry)

Australia Industrials / Thematic (Sector/Industry)

A Solid Reporting Season with an Improving Outlook: Reporting season saw more beats than misses for the ASX 200 on both EPS (54% vs 38%) and Revenue (50% vs 38%).  Analysts revised up full-year EPS growth by 0.4%pts to 7.9%, while FY19 estimates were also revised up by 1%pt to 6.6%, but this still looks too low, in our view, given the improving domestic economic backdrop.Hard to Get Too Excited About the Two Key Sectors of the Market. The Banks remain shackled by the Royal Commission and the ongoing AUSTRAC investigation and the earnings outlook is only modest, but provisioning remains a large risk.  The miners were a little disappointing in managing costs, given the generally positive commodity price environment.  RIO was a positive surprise and is outperforming.   AWC, ILU and OZL produced strong results, but S32 and FMG were disappointing. Housing and Infrastructure Touch-points were Solid. CIM and WOR beat, BLD was solid along with WES’ Bunnings (Australia) business. DOW and MND both missed on EPS, but DOW received a solid earnings upgrade.  The developers such as LLC and WFD, saw solid revaluations of land and property inventory, but this should ease during the year.  Global cyclicals such as AMC and BXB don’t seem to be seeing strong benefits from the synchronization of global growth – grappling with competition and improving technology seems to be the focus.  The gas producers are taking different paths to distributing to Asia: WPL is investing in a new project, OSH is undertaking JV arrangements and STO is onboarding its largest shareholder for assistance. Discretionary Consumer Remains Weak. The JBH, HVN, MYR and SUL results highlight the difficulties the sector faces, but stocks such as FXJ, SEK, WOW, SWM and FLT show that turnaround stories can occur even in sectors with structural headwinds such as media and travel and supermarkets.  RFG is struggling to remain solvent and it remains way too early to hunt for value in in a beat-up sector such as discretionary retail.  Growth stocks again outperformed Value.Model Portfolio Implications: The Aussie market outperformed the US during reporting season due to better-than-expected results in Industrials.  We expect this outperformance to continue, led by sectors such as industrials where the improving domestic economy is becoming an under-estimated tailwind.  We will update our model portfolio within 2 weeks.

A Solid Reporting Season with an Improving Outlook: Reporting season saw more beats than misses for the ASX 200 on both EPS (54% vs 38%) and Revenue (50% vs 38%).  Analysts revised up full-year EPS growth by 0.4%pts to 7.9%, while FY19 estimates were also revised up by 1%pt to 6.6%, but this still looks too low, in our view, given the improving domestic economic backdrop.Hard to Get Too Excited About the Two Key Sectors of the Market. The Banks remain shackled by the Royal Commission and the ongoing AUSTRAC investigation and the earnings outlook is only modest, but provisioning remains a large risk.  The miners were a little disappointing in managing costs, given the generally positive commodity price environment.  RIO was a positive surprise and is outperforming.   AWC, ILU and OZL produced strong results, but S32 and FMG were disappointing. Housing and Infrastructure Touch-points were Solid. CIM and WOR beat, BLD was solid along with WES’ Bunnings (Australia) business. DOW and MND both missed on EPS, but DOW received a solid earnings upgrade.  The developers such as LLC and WFD, saw solid revaluations of land and property inventory, but this should ease during the year.  Global cyclicals such as AMC and BXB don’t seem to be seeing strong benefits from the synchronization of global growth – grappling with competition and improving technology seems to be the focus.  The gas producers are taking different paths to distributing to Asia: WPL is investing in a new project, OSH is undertaking JV arrangements and STO is onboarding its largest shareholder for assistance. Discretionary Consumer Remains Weak. The JBH, HVN, MYR and SUL results highlight the difficulties the sector faces, but stocks such as FXJ, SEK, WOW, SWM and FLT show that turnaround stories can occur even in sectors with structural headwinds such as media and travel and supermarkets.  RFG is struggling to remain solvent and it remains way too early to hunt for value in in a beat-up sector such as discretionary retail.  Growth stocks again outperformed Value.Model Portfolio Implications: The Aussie market outperformed the US during reporting season due to better-than-expected results in Industrials.  We expect this outperformance to continue, led by sectors such as industrials where the improving domestic economy is becoming an under-estimated tailwind.  We will update our model portfolio within 2 weeks.

Aussie Reporting Season Wrap