Reporting Season - Plenty of Energy but More Broadly EPS Targets Retreat

Share prices should be reflective of future expectations rather than the past. Earnings reports provide vital new information to tune expectations but on their own shouldn't dictate share prices. That is why, with the ASX reporting season now at an end, we look at changes in analysts' earnings expectations as an indicator of the strength of the season. We see these changes as far more instructive than simply whether the reported financials were better or worse than analysts' targets.

Analysts have been forecasting earnings on just under 500 ASX listed companies. In aggregate we didn't find much to get excited about. Over the course of the month of August, the average change in the consensus earnings per share forecast for fiscal 2019 was -1.76% - or -0.54% if the average is weighted by market cap.

Looking back over the past two months, capturing the impact of earnings guidance announcements made by man companies in July, the simple average EPS revision for 2019 was -1.65%, while the weighted average was +0.11%.

Figure 1: Aggregate FY19 EPS changes for ASX consensus coverage
M0/M1 = August 31 compared to July 31
M01/M2 = August 31 compared to June 30


As can be seen from Figure 1, Energy and Utilities were the sectors receiving the most favourable EPS upgrades from analysts. Energy was also the only sector where more companies received EPS upgrades than downgrades.

Equitable Investors Dragonfly Fund is a holder of IT consultancy Empired (EPD), which features in the table below (Figure 2) of the biggest EPS upgrades in August - yet its share price was unchanged. Similarly, Dragonfly Fund holds shares in fashion retailer PAS Group (PGR), which actually declined 8% despite an upgrade to analyst expectations.


Figure 2: Biggest EPS upgrades over month of August 2018 & price changes

Source: Sentieo, Equitable Investors

Thankfully, Dragonfly Fund was not a holder of any of the companies that received the heaviest downgrades from analysts, as set out in Figure 3.

Figure 3: Biggest EPS downgrades over month of August 2018 & price changes

Source: Sentieo, Equitable Investors

Popular posts from this blog

10k Words | August 2022

Image
Apparently , Confucius did not say “One Picture is Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy. It is almost compulsory to discuss interest rates and inflation so the first charts this time around give us inflation for advanced economies and Australia, via the RBA,  then US yield curve inversion and inflation-adjusted interest rates, courtesy of Bloomberg and Axios. The same sources have served up some charts on the strength of the US job market. Then we get into the tech sector with CB Insights mapping out billion-dollar acquisitions while Equitable Investors compares the dollar amount of stock compensation against operating cash flow for Amazon and Atlassian. The global IPO market is down 74% year-to-date in CY2022 and the Aust
Read more

Feel the Cash Burn as Profit Season Closes (or "In memory of Pocketmail")

Another crazy month of reporting financials has come to an end on the ASX, with the typical last minute dump of reports on the evening of August 31 (or the following morning) reflecting unfavourably on business models or financial robustness. "Have you heard if Company X has approached anyone about a convertible note or something like that", an investor peer asked me in passing on Friday. No, I hadn't. But I had looked at the financials Company X had just released and I know why he was asking. Cash on hand was equivalent to about 45% of its annual cash burn. Without fresh funding, Company X's brief life could soon come to an end. Too often founders or cornerstone investors choose to raise just enough funds to get to the next milestone, at which point they are sure investors will significantly revalue the business, allowing a less dilutive round of funding to get to the next milestone. Company X probably thought the same thing - the only problem is that its sha
Read more

Where was the EPS uplift?

Most of the top-down analysis of the ASX's August reporting season has focused on the surprises and changes in expectations for the S&P/ASX 200. But most of the real action, of course, could be found among stocks that don't have large enough free float market caps to make it in to this key index. Trying to make sense of the numbers and possibly identify an opportunity or two, we've run the numbers on changes in the consensus expectations among analysts for Earnings Per Share (EPS), using Thomson Reuters data. Starting where everyone else starts, we count 134 stocks that over the last month experienced upward revisions in EPS expectations for fiscal 2018, compared to 232 downward revisions. The weighted average revision over the last month for the largest 200 stocks (weighted by market capitalisation) was -0.2%. BUT much of the bad news was pre-warned - the weighted average decline over the past TWO months was -2.4%! Smaller stocks suffered larger negative revisi
Read more

Disclaimer

Nothing in this blog constitutes investment advice - or advice in any other field. Neither the information, commentary or any opinion contained in this blog constitutes a solicitation or offer by Equitable Investors Pty Ltd (Equitable Investors) or its affiliates to buy or sell any securities or other financial instruments. Nor shall any such security be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.

The content of this blog should not be relied upon in making investment decisions.Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information.

This blog is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this blog does not constitute a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Although this material is based upon information that Equitable Investors considers reliable and endeavours to keep current, Equitable Investors does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this blog may change as subsequent conditions vary.

Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components.Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog.