Roy Keenan from Yarra Capital Management shares insights with James Dunn from The Inside Network on the role of active management. The Inside Adviser
After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
Reporting season is here and it’s expected to be a mixed bag
With reporting season now upon us, it’s that time of year again when ASX-listed companies begin sending in their earnings results for the December half-year of 2021 (for some, who use the calendar year as their financial year, it’s full-year result time.) Market analysts and broking houses are expecting results to be a bit of a mixed bag, due to the spate of lockdowns and disruptions.
On one hand, domestic-facing companies will have rebounded strongly coming out of Covid-19 (in particular, the Delta variant) and its associated lockdowns. But, it wasn’t long before the Omicron variant hit, early this year, forcing companies back into lockdown, causing disruptions once again and pushing the recovery out even further. Some companies have already downgraded profit expectations, hit by supply-chain constraints and higher inflation. These include companies in consumer staples and consumer discretionary. While the overall effect is short-term in nature, Omicron will have been a negative headwind for certain sectors. On the flip side, other sectors such as the banks have already announced that they expect to increase dividend payouts, already yielding about 7 per cent-8 per cent on a grossed-up basis.
Staffing (or lack thereof) has been another issue. Companies with a labour-intensive workforce, such as private hospitals or mining services, will have suffered the most. In addition, companies trading on very high expectations will struggle. These include stocks from the Buy Now Pay Later sectors such as Afterpay (post-merger, trading as the CHESS Depositary Interests, or CDIs, of Block Inc., under the ASX code SQ2), Zip Co (ASX:Z1P), Sezzle (ASX:SZL), Openpay Group (ASX:OPY) and Splitit (ASX:SPT). All have risen on the back of the Afterpay boom, yet most of these companies aren’t profitable and will fail to meet such high earnings expectations.
On the plus side, oil, energy and banks are poised to do well. Oil prices are a lot higher and earnings expectations aren’t so high, which bodes well for companies such as Woodside Petroleum (ASX:WPL). Broking firm Morgans recently released its Reporting Season February 2022 Playbook, in which it lists the key themes to watch including “cost inflation, FY23 earnings trends, M&A activity, dividend surprises, short-selling and positioning in resources.”
The analysts at Morgans have listed their key tactical trades into results, which include Sonic Healthcare (ASX:SHL), Lovisa (ASX:LVS), Ansell (ASX:ANN), Seek (ASX:SEK), Healthco Healthcare and Wellness REIT (ASX:HCW), Megaport (ASX:MP1), Hub24 (ASX:HUB), PeopleIn (ASX:PPE) and Credit Corp (ASX:CCP). With dividends being a hot topic this reporting season, dividend per share (DPS) expectations have risen back above pre-pandemic levels. Morgans says “Heavyweight financials and resources remain our key picks to deliver bumper dividends for investors.”
Below are the broker’s Reporting Seasons Playbook of stocks listed from notable surprises to earnings risks and disappointing candidates.
