Investment Matters

Profit Reporting Season Winds Down

What have the first six months of FY-21 told us about how companies are travelling?

The short answer to the question is – much better than expected.


It appears that expectations were quite low leading into reporting season.

This is illustrated in the chart below:

MST Marquee

Usually analysts are “too optimistic” leading into a reporting season.

Thus, over the last 20 years, we have typically seen earnings for the next period (in this case FY-21) downgraded by 0.8%.

The upgrades so far this season can be added to the list of reasons why 2020 was an “unprecedented” year. Upgrades overall to FY-21 earnings have been +4.4%.

This has been led by two sectors: Financials and Materials.

Banks so far have provisioned for fewer bad loans than expected, achieved higher margins than expected and have far fewer deferred loans than anticipated – which as ANZ has shown, might lead to some of their earlier provisions being written back.

Miners have had a bumper half, with commodity prices (copper, iron ore, lithium, nickel and rare earth) continuing to be buoyant in the face of supply issues and resurgent demand.

A strong finish to reporting season for your companies: patience beginning to be rewarded.

Results have been almost unanimously pleasing over the past two weeks, with strong results begetting strong share price performance as reporting season winds down.

We were particularly happy with results from Cardno (+19%) and Intega (+16%) – with patience with these positions beginning to be rewarded.

A summary of results, for companies in which we invest, from this week as well as some you may have missed last week, is presented below.

Reporting season

With several of your companies due to report later today, we will publish a full summary of results over reporting season next week.

The results from this week are discussed in further detail below.

Last minute observation: Bond yields leap higher. Stocks shudder.

Even we were taken aback by the magnitude and rapidity of the rise in bond yields we saw over the past few weeks.

Overnight, the yield on 10-year government bonds hit 1.9% - a level we have not seen since March of 2019.

Higher bond yields of course have meant bond prices have fallen – which has led to a mark-to-market loss of around 7% for those holding 10-year Australian Government bonds.

Of course, such a rapid change reverberates throughout asset markets and we have seen a commensurate adjustment in equity prices this morning.

As we have mentioned numerous times, this was a possibility that we very much had in mind while constructing clients’ portfolios. We note that overnight and this morning, there has been significant selling of names in technology and other sectors with cash flows weighted to the distant future.

In a rising yield environment, we expect companies that generate meaningful levels of cash today to outperform those that promise to generate cash in the future. It is these types of companies that client portfolios have been positioned towards.

Our focus this week has remained on the companies you own and their operating performance – with results significantly outperforming our expectations.

Bond yields leap