Money
Issue No. 49 - October/November 2009
Companies announce full year profits
by Mr Steven Toth
Economic conditions in Australia and the world went to crisis point last October sending stock markets down into early 2009. Since that time, things have improved appreciatively. After a period where the crisis paralysed world financial flows and world indices dropped by as much as 50%, it is reasonable to expect that company earnings would drop significantly. In fact Australian earnings have held up remarkably well. Through the reporting seasons to date, the highlights have been:
Cochlear and CSL in the healthcare sector;
Leighton and United Group in the engineering and contractors area;
Commonwealth Bank delivering an excellent report that highlighted the dominance of the big four banks, and; BHP Billiton with an exceptional cash flow figure despite recording a 60% fall in net profit.
We have reported on the potential improvement of these companies in the last 12 months.
Should the solid company reports continue and, assuming no other major earnings shocks, the positive results are likely to help set the direction of the Australian share market for the rest of the year.
Through the first half of the season, reports indicated there had been a 5% fall in average company profits, a 10% fall in average earnings per share and a 9% fall in distributions. Company profits per share have fallen further than actual profits because many companies have issued new shares to investors to help repay debt.
As the reporting season comes to an end and the reality of company profits are revealed our conclusion is overall results look better than expected and brokers are likely to upgrade recommendations and forecasts. Some stocks have already been upgraded by brokers, causing some dramatic price rises.
In recent times, the market has rallied, driven mainly by stocks that had been out of favour. However, the defensive stocks, such as Telstra, Metcash, Sonic and Ramsay haven’t seen such solid share price rises. They have re...
