Flat profit growth for year ahead

Investors should expect flat profit growth over the next 12 months, but there is a strong yield case for investing in the markets, according to an executive at Perennial Value Management.

John Murray, managing director, Perennial, told media that in a period where we’re not seeing much profit, the fund manager’s internal forecast projects flat profit growth “or thereabouts”.

“Now it could be slightly higher than that, it could be slightly lower, but I don't think it really matters. On that sort of broad scenario, the market at the moment looks fair value,” Murray said, adding that the market “certainly doesn't look expensive”.

“It's not cheap. If you look at it on a yield basis, it still looks quite good value. It certainly looks, arguably, very good value relative to [cash] at the moment. So you can mount a strong yield story, I believe, for investing in the stock market at the moment.”

Murray further noted, looking at more cyclical companies, earnings leverage and significant cost-cutting, the probability of sharp profit increases in 2011, making the price earnings (PE) of the market in 2011 “a fair bit lower than the PE for 2010".

“But also in terms of yield, you've got profits that might start to grow quite sharply there, you're going to get dividends that will follow as well. And they're going to be paying taxes, so they're going to be franking their dividends as well,” Murray said.

Murray said Perennial is concentrating on the second-half earnings of the last financial year in formulating where earnings might be over the next 12 months, as most companies’ were still benefitting from the good times in the first half.