Biggest gainers and losers this reporting season: Editor's Note
But remember, these are achievements of the past. Next year is likely to be an entirely different story.
While there are still a handful of company results to come in, Morningstar's Peter Warnes says increased dividends, boosted by special payments and share buybacks, will be the "highlight of the August Reporting Season". As anticipated, three major banks are returning $10 billion in excess capital with actual (or intended) buybacks. Suncorp added to the splurge with a $250 million buyback and a special dividend of $103 million.
The big miners BHP and Rio Tinto rewarded shareholders with dividends exceeding $25 billion thanks to overflowing rivers of iron ore. Fortescue Metals will join the party on 30 August, Warnes flags. Retailers also rewarded shareholders starting with JB HiFi, and followed by Woolworths and Wesfarmers late this week. Overall, the season has shown how strong the front half of 2021 turned out to be for corporate Australia.
There have been the usual surprises, positive and negative as the virus is kind to some, ghastly to others. Nanosonics wowed posting a gain in full-year sales after a tough first half (where profit fell 74%). But investors took a beating as two former retail favourites – Appen and A2 Milk – fell heavily after detailing deep losses and forecasting lower full-year earnings forecasts. Tough news to swallow for those who bought these previous high-fliers at reduced prices, thinking they'd found a bargain, only to see the price go further south.
MORE ON THIS TOPIC: Retail sets tone for moderating expectations: Earnings Week 4
Morningstar analysts monitor the market's reaction to results in the 24 hours after the announcement. So far, readings for strongly positive and strongly negative - where the share price movement is greater than 5% up or down - are about even. This provides some insight as to "whether expectations were met, exceeded, or disappointed", Warnes notes. In many cases, he says the market action was more to do with future guidance than the reported results.
"Stock markets are generally good at looking to the future, not the past".
For this reporting season, here are the biggest share price movements from the close price the day before the result, to the close price the day of the result. This chart includes stocks under Morningstar coverage:
Source: Morningstar
The big movers on the positive side were technology related with Nanosonics shares up 21.9% and Wisetech up 28.4%. Domino's, which Warnes describes as a "serial outperformer", again reported positively, benefiting from covid-induced eating at home. Who among us hasn't ordered a pizza this lockdown?
Media featured on both sides of the ledger, News Corporation and Southern Cross were positive while Nine Entertainment and Seven West fell.
The results of insurers QBE Insurance and Suncorp were welcomed by solid price increases on strong premium growth and subdued claims. Magellan was hammered although Morningstar analysts view it as an attractive buy, trading at a 20% discount to fair value estimates.
These are achievements of events past. Results are for the six months prior to 30 June 2021, evading much of the hash lockdown measures. No one knows what lies ahead, but Warnes says investors would be wise to avoid extrapolating from this mostly elevated period. Given the lack of visibility and the economy plagued by lockdowns, he says the FY22 reporting season is "unlikely to be a repeat of conditions currently unfolding".
"High wire antics are usually accompanied by higher risk, especially if there is not a safety net," he says. "I see no reason to take excessive risk at present. Patience is a virtue.
"By this time next week, the FY21 reporting season will be a memory. What FY22 brings is likely to be an entirely different story."
Happy birthday
Australia's ETF industry turned 20 this week but as it's aged, it's become more youthful. A Benjamin Button effect? New research from State Street shows young Australians are dominating ETF investing for the first time in history. This year, Millennials and Gen Z overtook Baby Boomers and Gen Z as the dominant cohort of ETF investors, a trend which the company said was "accelerated by the coronavirus pandemic".
Women are also in on the trend. In 2001, less than one in 10 new ETF investors were women, the research found, but today that has increased to 26%.
"If recent adoption rates continue, women could be close to parity for ETF adoption in the next five years," the report said. Finally, a good investment story for women!
And Millennials sure love ETFs (this writer included). More than $36 billion was invested in Australian Exchange-Traded Products (ETPs) in the last 12 months, pushing Australia's growth higher than other major markets. "Over the past 10 years, Australian ETPs have seen a Compound Annual Growth Rate (CAGR) of 28.4 per cent, compared with 17.4 per cent in North America and 15.1 per cent in Europe", the research found.
A trade as old as the market itself
Move over American stocks GME and AMC, Australia has its own 'meme stock' now. Kuniko is its name and it rocketed as much as 370% on Thursday after announcing it was beginning an exploration program in Norway. The company had listed on the ASX just two days earlier at 20c and on Friday closed at $2.04. And why is it a meme stock? According to reports, the penny stock received "a barrage of attention" from paid media, social media and on encrypted messaging app Telegram via a group artfully named "ASX Pump and Dump". I suppose it does what it says on the packet. With groups as overt as this, isn't it time for the regulators to step in?
For those of you that can remember back to January, this is not the first time Australian investors have flirted with "memeification". Swept up in the GameStop madness, a small Perth based resources company that carries the same ticker – GME Resources (GME) – saw its stock shoot up 60% to a 52-week high of 12 cents. Other assets which have received this type of social media hype recently include quantum computing hopeful Archer Materials, biotech Dimerix and of course, Dogecoin. If a fad is good enough for America, then we are damn well sure to pick it up. It's worth noting that Morningstar analysts are precluded from investing in any of the stocks they review. If they're giving you a favourable rating, it's not because its growth will line their pockets. How many other people making recommendations can say the same?
******
Franking credits are back in focus after the recent retirement income reviews. In Firstlinks, Graham Hand set the cat among the pigeons publishing an article in support of franking credits. You can add your thoughts to the comments section (60 and counting) here. He also argues that the State Government's proposal to scrap stamp duty and replace it with a property land tax favours some but not all.
Soon, Australian tech darling Afterpay will vanish from the ASX and be replaced by American payments giant Square. How will investors shares be exchanged for Square shares? And what happens to investors who hold Afterpay through an ETF? Lewis Jackson explores.
Thematic ETFs multiplying as ETF Securities announces another three are soon to list. It seems the industry is becoming less broad-based and passive by the day. Morningstar analysts are sceptical, arguing that these products have an exceptionally short-track record to study and are not a recipe for successful, long-term investing.
Research house Rainmaker reckons robo-advice could be an $80 billion market in Australia. This week, we compare the portfolios of three major providers: Six Park, Stockspot and Raiz. I promise, they're more different than you'd expect.
The unification of BHP's dual-listed structure could make ETF investing in Australia even more exposed to resources sector-concentration risk writes Nicki Bourlioufas. And on the topic, Jackson speaks to analysts Mat Hodge and Mark Taylor about what the BHP-Woodside merger will mean for investors.
Following up on last weeks' editorial note, here's a link to Mark Lamonica's Portfolio Construction webinar. You can watch all of Morningstar's free education webinars on our YouTube page.
Shani and Mark, who co-host Morningstar's podcast Investing Compass, appeared this week on Phil Muscatello’s Shares for Beginners to talk about how to get started with investing. Give it a listen.
Sydney’s lockdown is its ninth week. How bad is it getting? This week my partner let me cut his hair. I think I did a pretty decent job, or at least we're still on speaking terms. Another month of this and I may let him cut mine…Hope you and your families are staying safe, healthy and mentally active.
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