With the reporting season nearly upon investors it can be a good time to review expectations for stocks in your portfolio. It can also be a good opportunity to seek out any companies that you think may beat market expectations, as it is these stocks that are likely to outperform in the period post-reporting season.
ASX Ltd (ASX: ASX) experienced a reasonably flat result for the full year to 30 June 2013, with underlying profit rising just 0.6%. The result however was really a tale of two halves. In the first half of financial year (FY) 2013, profits declined 5.3%, while second-half profits increased by 7%. Given all the initial public offerings (IPO) that occurred in the three months to December, the stronger second half is likely to have flowed through to a strong first half for FY 2014.
At the ASX's annual general meeting, the CEO provided an update on trading for the first quarter. At that time total capital raised was down 2% on the prior corresponding period, cash market average daily value was up 5% and ASX 24 average daily derivatives contracts traded were up 16%. The CEO stated that "this level of growth is encouraging, although the activity levels do not yet match the strong performance of the second half of FY13."
Since late October the ASX has underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which may suggest the AGM update is still ringing in investors' ears. The strong finish to the year with the rush of IPOs that occurred could mean the first half was ultimately a strong one – investors will know soon enough.
OzForex Group Ltd (ASX: OFX) listed in October last year and soon afterwards released its interim results which showed a net profit after tax of $9.6 million – the company has a financial year end of 31 March, so investors have a little longer before the company releases its full-year results. For the full year, the prospectus forecast a profit of $18.6 million which appears achievable based on the half-year result.
Understanding the demand dynamics of currency transfers for OzForex's client base will become apparent as investors become familiar with the company. Potentially however, the recent decline in the Australian dollar could have led to an unexpected rise in transactions as investors look to lock in exchange rates.
Cover-More Group Ltd (ASX: CVO) is a recently listed travel insurer which is currently trading below its IPO price of $2 per share. In its prospectus the insurer forecast a 32.5% increase in net profit to $22 million for the full financial year to June 2014. Given the lacklustre start to its listed life, a half-year result even in line with market expectations could be enough of a catalyst to push the stock above its IPO price.
Foolish takeaway
While some companies are very coy at providing guidance to the market, other companies release much more robust guidance. IPOs are one occasion when a company is forced to provide a very detailed forecast of management's expectations.
