Reporting Season Wrap and Outlook – half-yearly update

Headline earnings growth for Australian corporates reflects a continuation of favourable operating conditions, with aggregate results broadly in line with expectations and fewer negative surprises than usual.  Forward earnings growth expectations are largely unchanged at around 6% and are well underpinned by the resources sector.

Key themes emanating from the results season include:

1. Stable earnings outlook which supports reasonable return expectations
2. A distinct lack of negative surprises
3. Earnings momentum is emerging in the cheaper sectors
4. Commodity prices provide a buffer for earnings growth

While the market’s valuation is above its long term average, it is not egregiously so and is entirely consistent with the low interest rate environment. However, conditions are differentiated at an industry level and we are cognisant of the ongoing wave of disruption to traditional business models and industry structures. Equally, we aware of earnings momentum gathering among previously unloved industrial cyclicals and these are presenting a range of compelling investment opportunities.


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