Australian FY22 Earnings Season Overview

Most Australian companies report half-year earnings in February for the first six months of the new financial year (July 1 to December 31) before full-year earnings are reported in August.   

The background

The 2021 Financial Year (FY) saw a remarkable economic turnaround from the initial Covid-induced shutdown, supported by unprecedented central bank policy, government intervention and enthusiasm for the initial re-opening.

However, an outbreak of the Delta variant in Sydney in late June 2021 blighted the first half of the 2022 financial year, forcing three states along the Eastern Seaboard to enter another round of lockdowns that lasted until October.

An outbreak of the fast-spreading Omicron variant before Christmas sent many into voluntary lockdown and caused a new round of supply disruptions, compounded by flooding along the Eastern Seaboard into the first quarter of 2022.

New headwinds emerge

Despite the setbacks outlined above, the Australian economy has displayed impressive resilience. However, a new set of headwinds have emerged.

Partly a consequence of international border closures which choked the flow of skilled migration during Covid, the labour market is now as tight as it’s been. Companies are reporting labour shortages and are struggling to fill positions.

Higher wage costs are amplifying the inflationary impact of soaring energy costs and supply disruptions caused by China’s dogmatic pursuit of Covid Zero. Headline inflation is now at 6.1% YoY - the highest level since the introduction of the Goods and Services Tax in the early 2000s.

To alleviate these issues, the RBA began the withdrawal of its emergency monetary policy settings in May. Following an expected 50 basis point increase at its Board Meeting in August, the RBA’s new cash rate will be 1.85%. The interest rate market expects the RBA to continue raising rates to 3.50% by April 2023.

The RBA’s tightening cycle has triggered a decline in housing prices and combined with high inflation, consumer confidence has fallen to levels comparable to the GFC.

More broadly, the global outlook is uncertain. The outbreak of war in Europe has impacted energy and commodity markets, triggering spiralling inflation and aggressive global central bank interest rate hikes, into slowing growth.

All of which sets up another intriguing earnings season that perhaps should be relabeled “revelation season” as investors learn which companies can pass on higher costs and which companies will wear them.

What to watch for

The focus of the August reporting season will be centred on the quantity and quality of earnings, and forward guidance as investors seek answers to the following questions.

• What does the decline in consumer confidence and housing prices mean for consumer spending and profit margins?
• How will the rise in interest and mortgage rates impact bank margins and the quality of bank asset books?
• Whereas some U.S companies are noting the headwinds of the stronger U.S dollar, will the fall in the AUDUSD below .70c provide a corresponding tailwind for Australian companies?
• How big an impact will a tight labour market and rising labour costs have on margins?
• How significantly will volatility and falling commodity prices impact guidance and the mining companies’ ability to pay out dividends?

The key dates

In terms of the key dates to watch, the week of August 8 to August 12 inclusive is when the action begins to hot up, with reports from companies including Commonwealth Bank of Australia (CBA), Telstra (TLS), Megaport (MP1) and QBE Insurance Group (QBE).

The week 15 to 19 of August inclusive will see BHP Group Ltd (BHP), CSL Cochlear (COH), JB Hi-Fi (JBH), Santos (STO), Xero (XRO) and Seek (SEK) report.

The week 22 to August 26 will see reports drop from companies including Qantas (QAN), Woolworths (WOW), Coles (COL), Wesfarmers (WES), Domino’s Pizza (DMP) Appen (APX) and Flight Centre (FLT).

Rounding out reporting season, the week of August 29 to September 2 will see reports from companies including A2 Milk (A2M), Tyro Payments (TYR), Woodside (WDS) and Link Administration (LNK).

Which stocks will we be doing a deeper dive on?

A selection of stocks across the various ASX200 sectors will be previewed in the lead to provide a guide on what to expect.

CBA (10^th of August)

JB Hi-Fi (15^th of August)

BHP (16^th of August)

CSL (17^th of August)

Qantas (25^th of August)

Woolworths (25^th of August)

Appen (25^th of August)

A2M (30^th of August)

Woodside Energy (30^th of August)

What do the charts say?

The ASX200 has rallied 8.5% from its June 6409 low, to be testing a band of resistance at 6950/60. A sustained break above 6950/60 would negate the technical damage caused by the sell-off in June and paint a more positive picture, with scope towards the 200-day moving average at 7200.

Source Tradingview. The figures stated are as of July 29th, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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