25 February 2010
We're about halfway through half-year reporting season (got that?) and so far it's been a mixed bag. Wait, wait Ky - I thought you hated cliches - isn't "mixed bag" just another way of saying "not all company results were absolutely brilliant or devastatingly atrocious"?
I figure the use of one of the oldest chestnuts in the business jargon tree might draw attention to a clear feature of the market - it's a stock picker's market, in the worlds of David Hancock, the Commonwealth Bank's head of global equities.
What that means is that compared to the last few weeks, last reporting season didn't see much variation - everyone was down, undervalued, and cutting dividends. Pretty much everyone was raising capital and swearing to blow some air into the lungs of their balance sheet and in the case of last season, everyone was "cautiously optimistic" and "well placed for long term growth".
This February, however, we've seen a lot more variety, so investment managers have a chance at redemption after staring at their feet for the last couple of years.
Many have repeated the above lines in their announcements - but we're also seeing some crowd pleasers (not named Woolworths). Take the retail sector, for example. After what seems like an eternity of being flogged by Woolies, Coles surprised with a better than expected half year report. A few quarterly updates and an interim report showed the banks are starting to show a bit more variety. Gone are the days (at least for now) where the GFC had the majors quietly lining up one after the other to take the customary post-RBA-rate-hike PR bath - instead the NAB and ANZ are determined to catch up market share (even at the cost of margins) while Westpac and the Commonwealth restore some of their profits out of their super-conservative bad debt provisions and lick their publicity wounds after Bananagate and Storm Financial. The deposit wars are on, and the variety of strategies gives plenty of food for thought to banking analysts.
BHP and Rio admittedly both turned in nice results, although the recovery means the difference between their product mix - BHP has some nice energy plays whereas Rio is more heavily geared to China's iron ore appetite - is closer to the front of an investor's mind.
Investors rejoiced in the difference between steel makers - Bluescope remained a little too cautious about their outlook while OneSteel bathed in the win-win situation of having its own iron ore mine - which meant the rising iron ore prices not only boosted revenue, but saved a chunk of its input costs for making steel.
That said, there are some common themes. For example, the theme among CEOs that discretion is the better part of valour when it comes to giving guidance for full year results. Hardly a surprise given many are exposed to so-far rather flimsy looking recoveries and a volatile currency in the US and Europe. Even Chinese-exposed companies are wary that the Chinese government could appreciate the yuan.
Retail companies are also keeping a watchful eye on interest rates, even as they're meant to be riding the cycle - namely our improving job market and consumer sentiment - back to investor love. Historic lows or not, Australians are absolutely obsessed with interest rate movements - our avoidance of the worst parts of the GFC means we're still big fans of mortgages we may not be able to afford and credit card bills we really shouldn't have because we got excited by a $900 handout.
The property sector has been a little more homogenous. Many of them have sexy slim balance sheets, but having done some capital raising at the worst possible times, don't count on seeing dividends for a while - at least not those you were used to before your shares became more diluted than a Sprite at McDonald's. Commercial property yields are clawing their way back and it does seem a common belief that the second and third buyers have bounced back enough to make up for the first home buyers who have been vanishing from the markets, following the heels of the Federal government's boost to the first home owner's scheme.
But it's definitely a time when we're seeing some nice little cyclical recovery stories. Boart Longyear, the world's biggest maker of those giant drills used for resource exploration, came back from the dead. After doing a horribly dilutive capital raising to ward off a nasty debt that plopped itself off in a massive drop in demand...they're back. CEO Craig Kipp says their cost cutting is done, though with their junior miner customers a bit slow coming back, he's still careful - refusing to declare the turn around is permanent until their May AGM.
Another nice comeback - Virgin Blue delivered a result that few would have seen months ago - and while being carried by its domestic business, predicts its V Australia long haul outfit will break even by September. At the end of what's likely to be his last ever results briefing, outgoing CEO Brett Godfrey found himself the recipient of a congratulatory cake and a kiss by a parade of not at all unpleasant air hostesses (or PR staff dressed accordingly). You wouldn't have seen that last season, and it's not the only reason why the company's probably had no shortage of job applications to be the Virgin chief.
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