Reporting season opens this week, and the headline number looks strong. On this week’s Switzer Show, FNArena’s Rudi Filapek-Vandyck said that is roughly where the good news ends.
Almost all of that growth sits in two sectors. UBS calculates the 12% figure drops to 4.5% once resources companies are stripped out, and to just 2.5% once the banks come out too. Put another way, miners account for roughly two-thirds of the market’s forecast profit growth, and miners plus banks for about four-fifths of it. For the rest of the market, there is very little.
Filapek-Vandyck says his own numbers tell the same story. He calculates the average ASX 200 stock is down about 4.5% for the year before dividends, and that only around 40% of the market has risen at all. “If anyone’s out there and they thought they had a rough year,” he said, “they are far from the only ones.” Take mining and banks out, he added, and “almost nothing’s left.”
The index return flatters it. Filapek-Vandyck puts the benchmark’s total return at about six per cent over the year, but says under 3% of that came from capital growth, with dividends doing the rest.
The catch, he says, is that the current consensus forecast looks too high. He points to strategists at Morgan Stanley who expect the number to roughly halve as companies actually report through August, which would mean a run of earnings downgrades. His phrase for the month ahead was “booby traps and empty holes.”
Rudi Filapek-Vandyck was speaking on the Switzer Show. His views are his own and are general information, not financial advice.
