Dividends & Expectations in the FY21 Reporting Season - Live on ausbiz
This time last year, reporting season was all about how much of an impact COVID-19 will have on operations and if it will be permanent damage or transitory. A low bar was set by the market and many were able to hurdle it.
The difference this year is that the bar is extremely high for FY21 reporting season. If companies fail to reach those expectations, Trent expects the market to be ruthless in its punishment of that performance. But as he says, the billion-dollar question is: What will investors do with the cash flow? That will more likely than not mean good news for consumer discretionary names.
Dividends and expectations; why cashing in this reporting season will have its pitfalls
Read the conversation:
"And to give us some of what he's watching in terms of reporting season themes, Trent Primmer from Barclay Pearce Capital is joining us. Trent welcome. Just because we ended with a preview of last week there, what's really on your radar for next week, what are your expectations?"
"Look, I think the results next week will still be relatively light on. I'm most interested in Baby Bunting, Goodman Group and CBA.
CBA mainly to get a good rate on what the big banks are doing in this market, how the economy is tracking and sort of the moves that they're making. Obviously dividends have been a pretty big highlight this reporting season with Rio which was probably one of the biggest to report with record profits and dividends announced.
Another key theme, I think, will be what investors do with the cash flow from these dividends. I think from some of the larger miners you’re going to see a lot of that cash flow through the economy to consumer discretionary. But I think some of the junior miners will probably get a little bit of a buck in the right direction from some of those dividend payouts and companies like LKY and Sandfire Resources in the copper sector, some of your silver miners, Silver Mines (SVL). Lithium plays like Galaxy, Rare Earths, Iconic Rare Earths, and Nickel miners like mincore should do quite well as a result. So it'll be an interesting reporting season.
Last year, reporting season was basically about how much of an impact COVID would have on businesses and if it was permanent damage or if it was transitory. A pretty low bar was set by the market, many were able to hurdle that. 111 stocks reported surprises and about 70% of those stocks traded higher on day 1 of those results.
But in contrast, 84 of them last year, reported results worse than expected, but only 50 odd percent of those stocks traded down on day one. So I think this reporting season companies with mis expectations will be particularly harshly judged, and I I'd expect broad sell offs in those stocks that report underwhelming results compared to analyst expectations probably expect a bit more downside risk in some of those companies missing earnings.
One that's obviously very interesting for us to watch with a lot of the corporate action and IPO’s coming through over the past 12 months will be nuix. And some of these companies that have listed will be reporting full year earnings for the first time. It's a bit of a learning market for us at the moment with COVID going on, and I figured it'd be a great case study moving forward for the market."
"Yeah. All right. Some big names there. Nuix will be an interesting one, as you say.
So we talk about this every reporting season, you know, will there be really knee-jerk reactions to the reports when they come out? Do you think because we have some of those uncertainties now looming; lockdowns and questions over where economic growth will go from here. That if a company disappoints there will be really sharp, severe reactions in the share price?"
I believe so. I think people potentially entering, look buying stocks before the report is quite risky. If one of those stocks miss even slightly, or even if there's something negative in the outlook statement or some sort of uncertainty, the market will smack them down pretty hard. And particularly in a market that's run so hot, people aren't going to have any patience for stocks that have disappointed. They'll cut their losses quite sharply and move into other stocks that probably have more positive outlook statements and are sort of in line with macro trends that we're seeing in the market moving forward.
But I think that the market will still be relatively well supported after the earning season. Yeah, that's my view on that."
"Okay. This time last year, you know, reporting season was very much about COVID and the expectations and where to from here, perhaps for a while we thought we might've been past that trend, but clearly, you know, you'd think that there would have been some revisions to some of the commentary being put in these media releases and ASX announcements around COVID and the potential impact.
How do you view companies that are unwilling to provide guidance at this stage in the game? I mean, is it getting a little bit of a weak excuse COVID because we've been through this before, so we have sort of a playbook as to how the economy might recover."
"Yeah, exactly. And that's a great point. I think, like I said before, a lot of companies and a lot of investors won't buy that excuse anymore. Last year was a test on basically how these companies are going to perform, and what do they expect in terms of how COVID is impacting their earnings. Companies should already have a pretty good gauge of this, and I think using the excuse of, you know, the worst variant of COVID is probably not going to fly with investors. And that's why I think a lot of them will be judged pretty harshly, just riding on that same excuse. Some companies are pre guided, and they’ve still managed to do relatively well when they've reported. But I think using COVID as an excuse, it's getting a bit old."
"Well, we will see Trent Primmer from Barclay Pearce Capital. Look, you'll be getting your sleep this weekend to prep for a pretty big week next week. Thanks for today."
"Absolutely, thank you."
This interview was arranged by Hans Lee, producer and journalist at ausbiz.
Barclay Pearce Capital team members are often featured by the media, sharing their insights on the market. Receive the latest market summaries and market-moving news, subscribe to Deal of the Week