The half-year reporting season for Australian listed companies will begin this week. According to the Australian Financial Review (AFR), given that the share prices of Bunnings parent company Wesfarmers and 4WD accessories retailer ARB have both hit new highs recently, Australia's retail industry is expected to report its best earnings ever.
Due to the good control of the epidemic in Australia, the economic recovery momentum is obviously better than that of other developed countries in the world, coupled with the continuous improvement of the job market and the sharp rise in commodity prices, effectively driving the market to rise.
Randal Jenneke, head of the Australian stock market at T. Rowe Price, said: “We have received a lot of monetary and financial support. Over the past nine months, these supportive measures have indeed Helped to drive demand."
The return of cyclical stocks is closely related to the prosperity of the economic cycle, and then benefited significantly from the economic recovery.
For example, Australia’s third-largest iron ore producer Fortescue Metals Group stated in its latest performance announcement (see figure below) that its revenue in the first half of the fiscal year alone reached US$41 billion (A$53 billion). The recovery has provided important supporting conditions for the recovery of profits of Australian resource and mining companies.
Fortescue (ASX: FMG) Financial Statements in the latest quarterly report
Although China’s punitive tariffs on wine and barley have brought some impact, Australia still achieved the fourth largest trade surplus in history in December 2020.
Craig Woolford, Head of Research at Citi Australia, said: “With the start of next month’s earnings season, many listed companies are expected to achieve profit growth in the six months to December. In contrast, in 12 In March and April, profit growth was almost impossible to think of."
Retail"Definitely one of the outstanding industries"
In the context of the surge in stimulus consumer spending, some companies have issued optimistic performance forecasts in advance.
For example, retailers JB Hi-Fi, Super Retail Gorup, Premier Investments, Michael Hill, Accent Group, Bapcor, and Nick Scali have all issued announcements of pre-increasing performance.
Compared to almost any other developed economy, the Australian government has been more successful in preventing and controlling the new crown epidemic, which in turn promoted the rapid recovery of the local economy after the epidemic.
Data show that the unemployment rate in December further dropped to 12%. Although it is still much higher than the level a year ago, it is significantly better than the expectations of the Ministry of Finance and the Reserve Bank of Australia.
Jenneke said: "A strong domestic economy will obviously benefit many domestic cyclical indicators."
According to its analysis, in addition to non-essential retailers, online real estate portals Domain and REA Group, and companies related to housing construction are likely to report good performance that exceeds market expectations.
Jenneke said: "I think the revenue growth of these industries will exceed market expectations."
Woolford said that the government's supportive measures were significantly reduced in the fourth quarter, but retail spending was still significantly better than people initially worried.Facts have proved that the retail industry is one of the outstanding industries.
According to official data, after adjusting for seasonal factors, retail sales in December fell by 12% from the record level in November, but increased by 11% from the same period last year.
In view of the fact that the Federal Government and the Reserve Bank of Australia will gradually withdraw from emergency supportive measures during the epidemic, the market doubts whether these companies can sustain their profit growth.Nevertheless, Jenneke believes that the increasing trend will not be reversed soon.
The market believes that this profitability will disappear in the next two to three months, but Woolford believes this is wrong, and he believes this growth trend will be maintained for most of this year.
Mining companies become big winners in global recovery
As the earnings season arrives, Jenneke pointed out that the following five stocks are worth watching: Domain, SEEK, Harvey Norman, James Hardie and Oz Minerals.Because the global cyclical recovery is an important factor driving market performance, the impact on mining companies is particularly significant.
Woolford also agreed with this, "Mining companies have become one of the winners of the rise in commodity prices, especially the prices of iron ore, copper and nickel have all risen sharply."
According to data provided by Fastmarkets MB, the spot price of 1% grade iron ore on January 25 (Monday) was US$62 per ton.
Woolford said: "We believe that the strong growth momentum of the domestic economy will mean that banks' credit risk will be reduced, which in turn will promote the release of reserves for 2020."
Morgan Stanley: Australian stock ASX200 target point at 7100
So far, Australian stocks have rebounded from their lows in March last year to their 3-month highs.
He said: "After the news of vaccine development progress was released, the market has rebounded sharply. Therefore, the profit growth in the six months to December has been reflected in the market. Therefore, the next challenge for the market includes: whether the profitability can be maintained, Growth is affected by one-off factors such as stimulus, or is there a long-term growth momentum?"
Morgan Stanley (Morgan Stanley) data shows that the 12-month forward price-earnings ratio reached 19.6 times, much higher than the 20-year average (15 times).However, the overall figures conceal huge differences in market segments.For example, the price-earnings ratio of industrial stocks is as high as 29.7 times.
In this regard, Jenneke did not worry too much. "Given that people are currently expecting an improvement in earnings, as long as earnings recover steadily, such a P/E ratio is not surprising."
According to Morgan Stanley's forecast, the target point for the ASX 200 is 7100, which is close to the record level of 2 points last February.
However, a full economic recovery may put technology stocks and healthcare leading stocks at risk.
In 2020, companies with good performance have become "scarce products", which is an important reason for their rapid rise in stock prices.However, by 2021, white horse stocks with strong performance growth will not be scarce in the market, and stocks that are overvalued are at risk.
Dividends are expected to increase as the profits of listed companies increase.And dividends and capital management are more favorable, then it indicates that companies are optimistic about business growth prospects, which is undoubtedly good news for investors.
Similarly, because the exchange rate is beginning to have an impact on offshore revenue, companies with less promising prospects may become "losers" dragging down market profits.
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