Australia Strategy: Morgans Reporting Season Playbook
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 22 July 2021, 2:30 PM
- Sectors Covered:
- Equity Strategy and Quant
- Heading into the August results, we examine key strategic themes across earnings trends, M&A, lockdown impact, dividend surprise, cost inflation and resources.
- Morgans analysts preview the results for 184 stocks under coverage that report in August and call out likely surprise and disappoint candidates (page 14 onwards).
- Key tactical trades into results (page 2) include TPG Telecom, BHP, Santos, Amcor, Sonic Healthcare, Computershare, Zip Co, Carsales and Eagers Automotive.
Cautious overlay could overshadow strong underlying fundamentals
We enter a critical juncture for the equity market. Widespread lockdowns temporarily threaten to pause the economic restart against the broader recovery in company earnings.
The usual market signals such as upgrade momentum (two upgrades to one downgrade), double-digit earnings growth (40% of Industrials set to report 20%+ growth), and low volatility suggest that prices should directionally head higher. However, cautious outlook statements once again could overshadow what will otherwise be a solid FY21 earnings period.
M&A season is in full swing
M&A has picked up with some vigour after a quiet 2020. With clarity returning to the earnings outlook and a historically low cost of capital, we see the prospect of a further pick-up in activity into FY22. In our view, further consideration should also be given to the upswing in M&A activity that has emerged in recent months.
While buying companies purely for M&A is a fraught strategy, we think it can offer some downside protection for embattled names or help peers realise value in out-of-favour sectors (COVID-19 winners, aged care/retirement, online marketplaces). We identify 35 opportunities on page 8.
Thoughts on resources
A bullish commodities outlook is supported by rebounding demand (restarts, stimulus), supply constraints (pandemic, under-investment) and financial forces (US$ deflation, inflation hedge). However, this is a broad consensus view, leaving sector sentiment vulnerable to over-heating.
Current volatility is generating opportunities on weakness and the stocks at the top of our watch-list are BHP, Santos, OZ Minerals, Whitehaven Coal and Ramelius Resources.
A bumper season for yield seekers
Dividend ‘catch-up’ was a feature of February results after market DPS fell ~30% on aggregate in 2H20. Upside in the earnings outlook provides scope for boards to again surprise in dividends released, albeit off a higher expectations base and pending confidence into FY22.
We see scope for banks, major miners, insurers and REITS to offer upside surprise for income.
Reporting Season Playbook
Morgans key tactical calls
We share a list of 20 stocks with material upcoming catalysts in our full research note. You'll also find our analysts' expectations for 184 stocks under our coverage that report their results in August:
Download full research note
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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.