The February 2018 reporting season has showed strong sales growth across industry sectors, according to Legg Mason affiliate, Martin Currie.
The sales growth also translated into a higher earnings per share (EPS) surprise, with 37 per cent above expectations and 29 per cent in line with projections.
Martin Currie Australia’s chief investment officer (CIO), Reece Birtles said that the positive news on sales surprised the market, with actual results beating consensus forecasts on sales growth.
Additionally, the growth was based on greater investment and lower margins, which was expected to be to be more sustainable for the economy than very low sales growth and cost out stories of the past few years.
“For companies in the S&P/ASX200, 38 per cent exceeded consensus sales forecasts and another 46 per cent were in line with projections, with only 17 per cent below expectations. In fact, this is the best ratio of beats/misses of sales numbers that we have seen in a long time,” Birtles said.
“This is a sign that global growth and inflation looks to be finally making its way into corporate Australia. Strong PMI (Purchasing Managers index) numbers and an increase in capex of almost 10 per cent in 2017, up from -14 per cent in 2016 point to the return of corporate ‘animal spirits’.”
Other significant developments from the reporting season were:
- Best reporting season for EPS revisions since the Global Financial Crisis bounce-back, with 22 per cent more upgrades than downgrades;
- Higher capex didn’t put a dent in dividend payments which remained steady;
- Delivered EPS and forward expectations both rose, with the latter showing the strongest lift in five years;
- Positive revisions appear a bit under-baked given the strong sales data, with most of the uplift coming from the fact that actuals came in ahead of the forecasts; and
- Given the market selloff during February, and the ongoing macro uncertainty, we feel that brokers have not been as bullish when revising their models for future earnings growth, and that we should see further upgrades going forward.
