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Despite constant commentary about Australia’s robust economy, the announcement by Telstra of a 5.4% lift in new profit is a welcome sliver of positive performance in a profit-reporting season that has been pocked with nasty numbers.
The numbers so far look more like those from an economy in recession than the numbers from one that is the envy of the western world – the mantra of politicians and of some economists and commentators.
With the big numbers all in the brackets (indicating losses), what are leading companies to make of the message from this scorecard?
“So far, there have been more misses than hits,” says OptionsXpress market analyst, Ben Le Brun. “And these results are coming off revisions down. Rio Tinto came out and hit earnings expectations. That was positive, even coming from revised lower expectations.”
While the economy appears to be travelling OK, Le Brun says the outlook statements paint a murkier picture. “You don’t have to peel back the onion very far to say, outside of mining, we have an economy in recession. Retail, manufacturing and tourism have not seen a lot of growth.”
Senior trader with CMC Markets, Tim Waterer, has a slightly brighter perspective. He says the markets have forgiven the poor results so far. “Whilst the reporting season hasn’t been spectacular, the [S&P/ASX 200] index is marching higher. That is because of the better global picture. We are giving some stocks a bit of pass mark because the conditions in Europe are a bit rosier.”
The Dow Jones index is now above 13,000, and the S&P/ASX 200 is 4300 – numbers that are at the top end of fluctuations of the post-GFC period.
Not long ago, companies were very worried. A report released in July revealed a fall in the optimism of chief financial officers, which had risen briefly in the first quarter of this year. The report, by accounting firm Deloitte, revealed only 16% of CFOs were more optimistic about their company’s financial circumstances than they were three months ago – a dramatic turnaround from the upswing in sentiment seen in Q1’s results (38%).
Uncertainty in Europe was a big factor at the time, and this has since lessened, but slowing growth in China is also making CFOs nervous.
Despite recent housing data coming in well below expectations, Le Brun sees hope in the construction sector. “A lot of analysts I have been speaking to think we are coming to the bottom of the cycle, and Stockland and other are due to turn around,” he says.
Waterer says recent GDP figures beat expectations.“The indicators are not all going to the down side,” he says.
The unemployment numbers, which came out today, are steady at 5.2%.
Worries about a possible slowdown in demand from China, and about falling commodity prices, mean that even the companies well inside the boom – mining, resources and mining services – are starting to see softening numbers.
The main pain revealed by the overall picture relates to exports, which makes the profit results a concern for medium-sized and large companies, which typically have export revenue: the high Australian dollar, the fluctuating economic picture in Europe and the US, softening demand in China are all part of the picture.
And although there are worries about some domestic issues – 84% of CFOs identify government decisions as an issue and, of those, 36% saying these have a ‘significant’ impact – domestic indicators are still positive, and the outlook remains optimistic because most of the bad news has already been flagged and taken into account by the market, which is rising.
And the good news …
Sleep therapy company, Resmed, ended its fourth quarter with a 12% full-year net profit.