FNArena’s Weekly Insights – August 20 2020

Dear time-conscious investor: early signals from reporting season are positive, but it’s early days, while institutional investors still like technology stocks, with analysts lining up their favourites

In this week’s Weekly Insights:

-Early Signals From August 2020
-Small Cap Favourites
-Technology Remains Everybody’s Favourite
-Investment Opportunity For Sophisticated Investors

Early Signals From August 2020

By Rudi Filapek-Vandyck, Editor FNArena

At first glance, this year’s August reporting season is providing support to the strong share market recovery witnessed since April, decisively delivering more “beats” than “misses” in corporate results and with stockbroking analysts increasing their price targets on average by 4.79%.

As per always, broader context is necessary to put the first two weeks of August in a proper framework.

The most important factor to consider is that the FNArena Corporate Results Monitor as at the 17th August still only includes 55 ASX-listed companies with subsequent broker responses.

While the Monitor operates on a 24-hour delay, the time needed for analysts to respond and reassess, properly, 55 companies to date is well below prior reporting seasons this far into the month.

Hence, it’s dangerous to draw firm conclusions from such a small batch of reports, involving no more than 15 members of the ASX50 and 35 of the ASX200, but it cannot be denied early indications are relatively positive and investors are showing a willingness to look through short-term headwinds, as I anticipated.

We will all be a lot wiser by this time next week, but as early indications go this season is heading for:

-circa -20% fall in earnings per share
-circa -38% reduction in dividends, with payout ratios on the rise (again)
-mild growth forecasts for FY21 (meaning growth won’t return until FY22 for many)
-on balance, net increases to valuations & price targets
-roughly balanced moves between upgrades and downgrades in stockbroker recommendations
-ongoing uncertainty with most companies refraining from providing FY21 guidance

Click to read the Full Report