2008-09 annual reporting season wrap up
The reporting season has officially come to a close with many saying it wasn't as bad as expected. The favourable results have also given its support to forecasts that the worst of the economic downturn is over.
No nasty surprises
To help manage expectations and lessen the element of surprise, many companies have seen a number of write downs, which forced dividend cuts and many capital raisings. This provided an opportunity for the market to rerate companies relative to the S&P/ASX 300 Index. The Lincoln Australian Share Fund holds some of these rerated stocks, these include Seek Limited (SEK), Sonic Healthcare Limited (SHL), QBE Insurance Group Limited (QBE) and Toll Holdings Limited (TOL).
There were other stocks (such as the major banks) that were rerated because of improving economic conditions, including stronger gross domestic product (GDP) growth, lower levels of expected unemployment and lower levels of bad debts. The two best performers in that group were Australia and New Zealand Banking Group Limited (ANZ) and National Australia Bank Limited (NAB) which showed a better turnaround as these were the groups that analysts had previously expected to be hurt the most in a deteriorating economy.
The capital raisings continue
Then there were stocks that have come back to the market for more capital to repair their balance sheets, Healthscope Limted (HSP), Ramsay Health Care Limited (RHC), Bank of Queensland Limited (BOQ), Ten Network Holdings Limited (TEN), Goodman Group (GMG).
Telstra Corporation Limited (TLS) was one stock that underperformed the market, despite paying a strong dividend, as management downgraded its guidance on future levels of cashflow. A significant number of additional shares in TLS were released to the market after the release of its result, as the Future Fund sold around 25 per cent of its holding to institutional investors. This put additional downward pressure on the group's share price.
Rio Tinto Limited (RIO) was impacted by a slightly lower than expected result but more so by the ongoing tension between management and the Chinese Government, a country which sells a large amount of iron ore and other minerals.
Westfield Group (WDC), GPT Group (GPT) and Stockland (SGP) the three majors in the Property Trust sector all had very strong share price performance during August despite reporting some multi-million dollar write offs resulting in lower net tangible asset values.
2009 and beyond
The market now appears to be looking beyond expected 2010 results when assessing the value of a number of stocks. The first year of recovery and large earnings per share (EPS) growth is expected to be 2011. While no companies are willing to give guidance out that far, broking analysts are forecasting economically sensitive companies to improve EPS by up to 50 per cent in that year. At this stage we cannot be sure as to the degree of the recovery but it does appear we are through the worst part of the economic downturn in Australia. Unemployment no longer looks like it will end up with an eight in front of it, however the Reserve Bank of Australia (RBA) looks like it will have to start tightening monetary policy earlier than had been expected, before the end of the calendar year 2009.
The four most important influences on the Australian share market over the coming six months will be:
- The speed at which the RBA (and the major banks) increase interest rates
- The Australian Government's commitment to deliver all aspects of its stimulus package, in a timely fashion
- The turnaround and sustained recovery in the United States (US), particularly the US consumer
- China's ability to sustain demand for Australia's resources and Australia's ability to deliver to them at a mutually agreeable price.
With what could be termed as 'good news' it is still important to keep fear and greed aside and stick to your long term investment strategy and goals.
Like to know more?
To find out more about the Lincoln Australian Share Fund and investment approach please call our Managed Investments Team on 1300 676 332.
Important information. This information is issued by Lincoln Indicators Pty Ltd.
Investment Manager: Lincoln Indicators Pty Ltd (Lincoln) ACN 006 715 573, AFSL 237740. Responsible Entity of the Fund: Equity Trustees Limited ABN 46 004 031 298, AFSL 240975. All figures, information and illustrations are as at 01 October 2009 unless stated otherwise. Portfolio holdings and sector allocations are subject to change without notice. This communication contains general information only. It has been prepared without taking into account the objectives, financial situation or needs of any individual investor. As a result, you should consider its appropriateness in regard to your particular objectives, financial situation and needs. You should also consider obtaining your own independent advice before making any financial decisions. It should be read in conjunction with the Product Disclosure Statement (PDS) of the Lincoln Australian Share Fund; which can be obtained by contacting Lincoln on 1300 676 333, or via our website www.lincolnindicators.com.au. You should read and consider the PDS before making any decision about whether to acquire or continue to hold the product. Applications to acquire units can only be made on an Application Form attached to a current PDS. Lincoln, its employees and/or associates may hold interests in companies listed in this communication. This position may change at any time without notice.
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