Consumer spending, China’s uneven economic recovery and declining dividend payouts are in the spotlight as Australia’s earnings season ramps up, with market watchers expecting lackluster results.
(Bloomberg) — Consumer spending, China’s uneven economic recovery and declining dividend payouts are in the spotlight as Australia’s earnings season ramps up, with market watchers expecting lackluster results.
Investors will be looking to see how Australia’s biggest companies and consumers are weathering the Reserve Bank’s tightening campaign. Mining profits could be a pain point as commodity prices decline and China’s demand for product wanes.
The reports come as the country’s S&P/ASX 200 Index lags peers. The bank and miner-heavy gauge is up 5.9% this year, trailing the regional stock benchmark as investors flock to technology shares. Earnings downgrades have also weighed on Australian shares.
“We expect modestly lower earnings than last year,” said Anna Milne, an equity analyst at Wilson Asset Management. Guidance statements will likely “be limited in nature.”
Here’s what to watch this earnings season:
Consumer Crunch?
All eyes are on Australian consumers and whether companies can meet sales targets amid higher interest rates. Retail sales unexpectedly fell in June, suggesting consumers are hunkering down amid higher rates and still-elevated inflation. On Tuesday, the nation’s central bank left rates unchanged but kept the door ajar to future hikes.
Supermarkets, health companies and insurers will hold up better than their discretionary peers, with household goods, electronics and fashion companies set to be hit hardest, Paul Taylor, Fidelity International’s head of investments in Australia, said at a briefing in Sydney.
Read: Australia’s Retail Sales Decline as Rising Rates Take Toll
Key stocks to watch: Woolworths Group Ltd. (YTD +16%), Commonwealth Bank of Australia (YTD +3.2%), Harvey Norman Holdings Ltd. (YTD -8%), JB Hi-Fi Ltd. (YTD +11%), Qantas Airways Ltd. (YTD +8%), Flight Centre Travel Group Ltd. (YTD +60%)
China’s Recovery
Rio Tinto Group last week reported lower profits and dividends in a negative sign for the Australian benchmark’s second-largest sector. China’s output grew more slowly than expected last quarter, while other data haven been flashing warnings on everything from consumption to trade.
Still, China’s reopening may be positive for some firms. Companies like IDP Education Ltd. should see an incrementally better earnings outlook compared with last year as students consider international study options again, Wilsons Advisory analysts led by Rob Crookston wrote in a note.
Key stocks to watch: BHP Group Ltd. (YTD +1.6%), Fortescue Metals Group Ltd. (YTD +7.2%), Woodside Energy Group (YTD +7.7%), IDP Education Ltd. (YTD -8.9%), Treasury Wine Estates Ltd. (YTD -17%)
Financials Diverge
Commonwealth Bank will set the scene for the sector’s share performance when it reports next week, as investors eye results from the country’s largest lender at a time when interest rates have stoked concern over credit growth and earnings. It’s the only one of Australia’s so-called big four banks to report earnings this month, though other lenders will issue trading updates.
Insurers are set to be a bright spot as rate hikes, inflationary pressures and a series of extreme weather events have pushed up premiums.
“Within financial services, we get a definite preference of insurance over banking” as premiums tick higher, Fidelity’s Taylor said.
Key stocks to watch: CBA, National Australia Bank Ltd. (YTD -4.9%), ANZ Group Holdings Ltd. (YTD +9.4%), Insurance Australia Group Limited (YTD +25%), Suncorp Group Ltd. (YTD +17%)
Declining Dividends
Among companies on Australia’s benchmark, dividend payouts are expected to fall almost 6% this year, according to data compiled by Bloomberg.
Materials companies are tipped for the largest decline, falling 37%. Energy shares are expected to lead payment growth for another year.
Key stocks to watch: BHP, Commonwealth Bank, Newcrest Mining Ltd. (YTD +31%), Qantas, Whitehaven Coal Ltd. (YTD -26%)
–With assistance from Zhuo Zhang.
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