Right before reporting season we saw volatility creep back into markets. This was driven by concerns over the likely increase in US interest rates (driven by a strong US economy) and investors' high expectations for company profits. Here in Australia, a richly valued sharemarket meant there was likely to be higher sensitivity to company results, particularly results that disappointed.
The semi-annual reporting season in February provides a great health check for equities. In aggregate, the profit season did not lead to a major shift in expectations.
Some of the key themes from the February 2018 Australian profit season included:
- Across the industrials, revenue growth remains average at best.
- Cost reduction programs have been exhausted.
- Balance sheets remain strong with many companies taking the opportunity to use surplus cashflows to repay debt.
- Corporate tax rate reductions in the US are likely to benefit a number of companies.
The world is changing at a rapid pace and we continue to challenge the investment rationale behind a number of sectors, including banks, telecommunications, supermarkets and property. Investors cannot afford to look to the past for tomorrow's investment idea.
For a more detailed overview of reporting season we encourage you to read our detailed Reporting Season Wrap.