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Reporting season: Volatility breeds opportunity

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By Raymond Chan

Welcome to the Australian reporting season! 

Below is an update from our strategy team on the first full week of reporting season.

It's difficult to read a lot into last week’s results, with only 13 out of 250 odd stocks of interest having reported so far. However, it's been disconcerting to see the market's reaction to profit warnings and poor results (and even some flat results) which has driven localised volatility in various names, both small and big. 

Navitas, Freelancer, iSentia and Select Harvests are all either high-PE or highly-cyclical growth stocks, which all issued either disappointing results or downgrades last week and were subsequently sold off by 12-18%. 

ASX 100 stock ResMed reported strong underlying revenues but higher-than-expected costs and was sold down 6% on the day, which the Healthcare team thought excessive. ASX 50 stock Suncorp fell 6% after slightly disappointing earnings (claims and costs).

As we flagged in our reporting season preview, it is proving difficult for corporate results to not disappoint a market trading on fair-to-fully priced valuations. However, volatility breeds opportunities and we expect more over-selling situations in quality names like ResMed to unfold during reporting season.

Looking to key results in the coming days:

Tuesday - Transurban

Wednesday - CBA, Carsales, Seven Group (tbc)

Thursday - Orora, AMP, AGL 

Friday - REA Group, NAB (Quarterly) 

Transurban: The focus will be on costs, FY18 DPS guidance and FY18-20 LTI targets. 

CBA: Expect result to be broadly in line with consensus. Focus will fall on the AUSTRAC civil case and possible implications for the other majors.

Carsales: We're looking for more colour on recent price rises and the new competitor. Trading on 22x FY18.

Orora: Australasia is subdued, while North American momentum should continue. Key will be impact of energy cost headwinds in Australasia from FY18. 

AMP: We expect a relatively stable result, given AUS/NZ equity markets are slightly up for the half (NZ+8%).

REA Group: Commentary on volume growth is the key to holding recent price gains. Trading on 32x FY18.

Published: Tuesday, August 08, 2017


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