We’ve already seen a scattering of 2009 interim results from some of the small listed investment companies, while a lengthening line of companies have lowered their interim earnings guidance in the first weeks of the New Year.
Now the local interim earnings season starts this coming week in a fairly low key way. It won’t be as dire as the US where forecasts have shifted lower with each week.
Analysts at both Citigroup and Goldman Sachs JBWere have taken a stab at some of the themes and what to look for in what will be the most important reporting season for some time.
Citi analysts looked at some of the themes for 2009, as did GSJBW analysts, who then linked them to the about to stat reporting season.
Citi analysts amusingly talked about ‘despair’ being ahead of us. After the past year, I’d say despair has been with us for a awful long time.
Citi analysts said they saw the key themes of 209 as being "timing the turn (in the market overall and in banks and industrial cyclicals in particular); economic momentum (especially the second derivative); credit spreads; earnings and dividend pressure; over- and under-owned stocks; re-regulation risk (especially financial and environmental); the housing cycle dilemma; the outlook for style investing (size, momentum, fundamental); and we contemplate the possibility of a sharebuying panic emerging late in the year.
The Despair Stage Could Still Lie Ahead — If sharemarkets "rise on worry, peak in euphoria, fall on hope and bottom out in despair", we believe that the "despair" stage still lies before us – potentially in the June or September quarters.
Consensus is still worryingly sanguine.
We expect major index swings through the year – our central case is for an indecisive battle between poor momentum and good value.
Against that backdrop, our S&P/ASX 200 year end target of 4,500 for year-end 2009 requires the year to finish on an upward zig, not a downward zag.
Second Derivative Crucial said: For the economy and profits, the path is likely to be downward all year. More interesting is whether the rate of deterioration accelerates or ameliorates.
We are confident enough of good value to be buying the dips in 2009, but wary enough of poor momentum to be selling rallies.
Goldman Sachs JBWere said the ratio of stocks our analysts believe which have downside risk to earnings this reporting season "outnumber the upside risk by 7.8 to 1 (only 1.4:1 this time last year) and highlights the pervasive negative sentiment now across the market.
"The percentage of companies that we expect to provide no guidance this reporting season has increased from 40% this time last year to over 50%, highlighting the limited earnings visibility in the current environment."
"This highlights the negative sentiment (and no doubt the reality) which is currently pervasive across the market".
"The stocks which our analysts believe have upside earnings risk during this reporting season include:
– AIX, ANZ, AUB, GNC, IRE, NUF, TOL, WBC, WPL (of these ANZ, NAB, WBC and GNC have September balance dates and will not be reporting till late April/May).
– Of these stocks onlyAUB, IRE have recently experienced positive consensus earnings revisions.
Stocks which our analysts believe have downside earnings risk and where recent consensus earnings revisions have exceeded -20% are: AAC, WSA, AXM, BBI, MGX, TIM, PNA, ABY, MRE, AVG, CEU, IGO, PLA, TEN, IPL, NFK, FKP, SEV, HVN."
Goldman Sachs said the "Key themes investors will be focusing on include:
- Balance sheet/Refinancing Risk
- Asset Impairments/Write downs
- Dividends
- Currency/Oil price impact
- Revenues.
Balance sheet/Refinancing risk
– with tight credit markets continuing to be a major focus of the market, investors will be closely watching balance sheet strength and the potential requirement for companies to deleverage.
We also expect that companies might take the opportunity to raise equity during this reporting period having provided the market with their most recent trading numbers, an updated balance sheet and potentially some comments on the trading outlook.
Asset Impairments/Write downs – given the sharp pull back experienced in the market over the last 12 months we expect companies will be examining the carrying values of recent acquisitions intangibles/goodwill).
While the majority of companies will be reporting interim results during this reporting period and therefore potentially delaying any asset impairment until the June year end, it could well feature over the next 4-5 weeks.
In times of poor results we also expect companies to take the opportunity to announce restructuring programs/costs (if the market is expecting the worst, why disappoint?).
We expect companies would treat any restructuring charges as "one off" and to strip them out. We remain cautious on this treatment given the potential for restructuring to be an ongoing feature for the next 2-3 reporting periods.
Dividends – another key focus for investors will be dividends and their sustainability.
Investors are currently pricing the ASX300 Industrials on a prospective FY09 yield of 7.1% (73% fran
