Key points: 

  • Banks to benefit from higher interest rates, even as loan growth slows
  • Commodity price volatility could spell lower dividends, with the exception of thermal coal
  • Discretionary retailers have so far enjoyed strong sales, but the outlook is less clear
  • Margins will be a key focus for consumer staple stocks
  • Leisure stocks face two opposing forces: pent-up demand and rising interest rates
  • Energy stocks will report strong earnings, but many remain undervalued


See more on this ASX reporting season here.

Transcript:


Nathan Zaia: A key part of our thesis for the banks has been higher interest rates will mean higher margins, and we've started to see that come through and we think there'll be more upside in the next sets of results. I mean, loan growth will be slowing. But we expect especially the smaller banks to ease up a bit in terms of chasing loan growth to try to preserve their margins a little bit more. Second key theme we'll be looking at is on the bad debt sides of things. We don't think reason defaults will be rising just yet, it's still very early on, but banks have good data on, customers transaction accounts, so money coming in, coming out. So it'll be interesting to see if there's any commentary around what they're seeing. What percentage of their borrowers, are looking like they're facing some hardship and as a result of that do the banks need to change their provisioning levels.

Jon Mills: So in the mining sector it's been a pretty volatile six months or so. If we are looking at the upcoming earnings, probably looking at lower dividends in general than the previous half and also the prior corresponding half, just because commodity prices in general were lower. The big exception is thermal coal and so with our thermal coal mine coverage, Whitehaven and New Hope in particular, we're expecting higher dividends than in recent times. The other thing we'd be looking at is costs. I mean inflation is everywhere at the moment. We're looking to see whether that's starting to moderate and that'll be apparent in the guidance that these companies provide not only in the operating cost side, but also on the capital guidance or capital expenditure guidance.

One other thing that's interesting going forward is that with China reopening, commodity prices have really soared recently and that bodes well even with increased costs for the miners earnings going forward. The notable exceptions that is actually thermal coal, which unlike other commodity prices has come down recently and so if that continues the likes of Whitehaven and New Hope will probably see lower dividends in six months time.

Johannes Faul: So for the retailing space, I'd like to differentiate between the discretionary retailers so those selling non-essential goods and the staples retailers like food and alcohol retailers. And in discretionary we've already seen some of the companies pre reporting their earnings, those earnings have been quite solid and actually beat our expectations for the first half. Having said so, we think that the much discussed cost of living pressures that are increasingly rampant in Australia or taking hold in Australia will have an impact and will have a severe impact in the second half. For the consumer staples like Woolworths, Coles, and Endeavour. We really want to see where the margins are heading and the reason we say that is because we're seeing a lot of inflation on the top line in food in particular. And that in isolation would mean margins would increase, but there's two offsetting effects and one might be that they lose traffic to discounters or clubs like Costco. So that will be something that we will keep a close eye on is the the profit margins for those staple retailers. And we we expect them to be roughly flat, maybe down a tad in fiscal 2023. So that's evidence we're looking for in the first half, and that's what we're expecting for the second half.

Brian Han: So in the telco sector, I think it will be a very boring year and I say that in a good way because it's a good thing that the sector will be boring this year after four years of intense competition and price discounting. We've reached that stage that equilibrium whereby all the operators are more concerned now about getting a return on their investment, especially on 5G rather than chasing market share at all costs. As everybody knows, telco companies are defensive by nature. And the services that they provide are increasingly essential by nature. What that means is that their earnings and dividends should hold up relatively well as we head into what is likely to be a very challenging economic period.

In the leisure sector, I think investors should be concerned about two opposing forces this year. On the one hand, we continue to think that there will be this release of pent up demand. I think the increasing or rising interest rates and cost of living will crimp discretionary spending power across the board among consumers. So what that means is faced with those two opposing forces, it is even more important that investors have a very clear idea about what the intrinsic value of a leisure company is based on mid cycle earnings. That way they can take advantage of the likely volatile stock price to provide them with the opportunity, to have a margin of safety, whether on the upside or on the downside.

Mark Taylor: Well, I think especially in the energy space you're going to see some really big earnings numbers come out because of the very high prices we've had over the last year. Companies like Woodside, for example, we're expecting around 150% increase in earnings per share and that'll translate through to the dividend as well. We're projecting a yield of around 10% on this year's earnings, but really investors should not be anchoring their future hopes on this year's earnings. These have been exceptional times with Russia's invasion of Ukraine. There've been very high gas prices in particular, which have supported Woodside's earnings.

And on the refining side, companies like Viva Energy have enjoyed very high refiner margins in Asia. It's translating through to very high earnings as well and Viva's another one where this year's yield is probably going to come in and around about 10%, based on the current share price. But next year is going to be a very different story, earnings are going to come back to Earth. But having said that, we still think these companies are cheap. Woodside's a 5-Star rated stock at the moment, so they've got a very bright future too, particularly on the gas side where renewables are going to take decades to come in and replace gas. So we're projecting very healthy prices for well over a decade.