FNArena’s Weekly Insights – August 22 2022
In this week’s Weekly Insights:
-August Delivering More Downgrades And Misses
-The Real McCoy Rally?
August Delivering More Downgrades And Misses
By Rudi Filapek-Vandyck, Editor FNArena
As far as price action goes, any company that disappoints this season is likely to see its share price drop by more than one day, even if that initial punishment on-the-day looks like a genuine shellacking.
Think Redbubble ((RBL)), down nearly -40% over the four days following FY22 update, but also Blackmores ((BKL)), Codan ((CDA)), Inghams Group ((ING)), the ASX ((ASX)), Appen ((APX)), Pact Group ((PGH)), Australian Clinical Labs ((ACL)), TPG Telecom ((TPG)), and numerous others.
That’s the ‘normal’ part of the August reporting season thus far. Thou shalt not disappoint remains an all-important condition in any reporting season.
But we also have two notable exceptions this month, and they are worth highlighting.
First category: share prices that had been sold down too far, irrespective of further disappointing news.
Second category: excellent performances that won’t be rewarded post the initial on-the-day rally, because the market doesn’t believe it is representative for what earnings might look like when tougher times arrive next year.
Plenty of examples fit in with category two and most have one or two things in common: they are either retailers (dependent on consumer spending) and/or exposed to the local housing cycle. JB Hi-Fi ((JBH)), Super Retail ((SUL)) and Stockland Group ((SGP)) are a few examples that come to mind.
Share price action post recent disappointing market updates suggests a lot of negative news had already been accounted for in prices for Auckland International Airport ((AIA)), BlueScope Steel ((BSL)), Challenger ((CGF)), Fisher and Paykel Healthcare ((FPH)), and GUD Holdings ((GUD)).
James Hardie ((JHX)) did issue a profit warning, but every analyst covering the company had already anticipated it.
Larger-sized companies are usually more resilient than small-caps and the first three weeks have delivered some notable heavy punishments for Redbubble and the like, confirming the thesis. Even though, it has to be noted, Adbri ((ABC)) shares are down -17% on the day of this company missing market expectations.
Even more important, potentially, is the fact that outperforming market forecasts with June-half performance and forward guidance is proving a bridge too far for most ASX-listed companies.
Having judged 120 corporate releases as at Monday, August 22nd, the FNArena Corporate Monitor is witnessing an ever widening gap between “misses” and “beats”, currently at 32.5% (39) versus 25% (30).
Given the exceptional high percentage in Buy ratings at the start of this season, it should not surprise downgrades are significantly outnumbering upgrades; 42 against 12 on Monday, while price targets are either falling or not adding much. Virtually every market update is followed-up with reduced forecasts for the year ahead.
With around two-third of companies yet to report, investors might want to keep their fingers crossed there is improvement on the horizon.
