Few nasty shocks, but little joy
Published in the West Australian, June 2010
By Rachel Donkin
All signs point to an underwhelming 2009-10 reporting season, with experts suggesting that investors' relief at just a few expected nasty profit surprises will be tempered by the absence of any real wow factor.
As the sharemarket tracks towards its third straight month of losses, analysts say Australian stocks have fared moderately well through the volatility and uncertainty of recent months and are likely to post modest growth for the 12 months to June 30.
The reporting season will cap a year marked by ripples of concern over the spread of Europe's debt problems and talk of a weakening in China's previously unstoppable growth.
The S&P-ASX 200's 66.7-point fall to 4413 points yesterday caps a 0.4 per cent decline for June so far, and comes on top of a 7.9 per cent fall in May and a 1.4 per cent drop for April.
"We know the market has been far from normal over the past two years and therefore we need to consider the possibility that it may fall away for a further four to six weeks to around 4000 points," independent market analyst Dale Gillham told clients.
While others are less bearish, Austock Securities senior client adviser Michael Heffernan said the market was likely to remain "fragile" for the rest of calendar 2010 with the uncertainty leading up to the Federal election. "When you combine all the recent (developments) it makes for a pretty unsettled market, and ... international markets have also been a bit fragile," he said.
Mr Heffernan suggested the coming full-year reporting season was likely to be less bullish than that of the December half, when analysts rushed to upgrade their expectations for the second half after interim results exceeded expectations. "We've already seen some profit downgrades, and I think on the whole it's going to be pretty uninspiring," he said.
Analysts' consensus estimates are for average full-year earnings per share growth of 8 per cent among stocks in the S&P-ASX 200, following a 20 per cent fall in 2009 on the back of a wave of massively discounted capital raisings as companies sought to shore up distressed balance sheets.
Goldman Sachs JBWere strategist Chris Pidcock said banks and resources companies were likely to drive profit growth, tipping earnings growth of 4.8 per cent for industrial stocks in the S&P-ASX 300 on an average 0.4 per cent decline in sales.
"These sales growth and margin assumptions appear reasonable ... given the level of cost reduction companies have undertaken during the last two years and the recovery profile exhibited following previous economic slowdowns," Mr Pidcock said.
But analysts agree 2010-11 is shaping up to be the year of earnings disappointment, with the global recovery heading for a slow-down on further shocks out of Europe and a pullback in China.
"The greatest risk from earnings will occur during the next reporting season through August, since this will be the first time that most companies will give serious guidance about 2011," Merrill Lynch strategist Tim Rocks told clients this week.
"There may be some disappointment on 2010 actuals, but the greater shocks will come from guidance."
Mr Rocks warned investors to brace for downgrades in consumer stocks, where the continued weakness in retail spending was likely to take another few months to wash through.
