Money
Issue No. 28 - April/May 2006
SA Stocks in review
by Mr Marcus Campbell
A reflection on the February reporting season
The February reporting season came in ahead of our somewhat cautious expectations generating a solid +3% profit surprise above our analysts’ forecasts (we were anticipating further downside risks which did not eventuate), continuing to reinforce the strength of the Australian economy (and equity market). The Resources sector came in below our expectations by 2.3%; however this was insignificant in the context of a 63% increase in Net Profit after Tax.
One of the key surprises during reporting season was the upgrade to 2005/06 forecasts by Goldman Sachs JBWere analysts. Given the weakness in domestic consumption, the continued slowdown in housing activity (NSW in particular), combined with increasing input costs (commodity prices, energy and wages) and the lack of earnings guidance from corporates, we had anticipated a negative earnings revisions bias, particularly given the historically high level of expectations for 2005/06.
We believe the short term risks to the domestic economy are diminishing with the RBA now on hold, and the increasing likelihood of additional tax cuts in H2 2006 combined with real wage growth driving demand. We believe the outlook for the domestic economy in the second half of 2006 and first half of 2007 remains skewed to the upside, driven by improving consumption & housing activity.
Chart 1. Housing Loans Annual Growth (Quarterly)
Once again, South Australian companies reported mixed results:
Adelaide
Adelaide Bank reported a first half Net Profit after Tax of $38.8m, slightly below our forecasts. Dividends per share were in line with our estimate of 26 cents.
Key take-outs from the result:
- Management reiterated guidance of more than 10% cash earnings per share growth for the next 3 years;
- The mortgage business is under pressure, but was assisted by strong growth in other businesses such as busin...
