Reporting season is always awaited with anticipation of good news, but the losses witnessed on the ASX this year have already primed the market to expect the worst earnings numbers since 2011–2012. Given that consensus forecasts project a 15%–20% decline in company earnings for FY20, the sea of red during this reporting season shouldn't come as a rude shock.
While it will be good to get the full brunt of the COVID-19 hit to corporate earnings out on the table, the trickier part for investors will be making sense of earnings forecasts for FY21 – which Morgan Stanley expects to improve to a drop of 2.7%.
Adding to the forecasting conundrum is the unknown impact from any extension to JobKeeper and/or the fallout from the federal government's budget night announcements in October.
Due to the continuous disclosure rules for listed companies, shareholders should be in a 'no-surprise' situation when companies finally report. However, some companies may feel it's prudent to feed the market with any updates – especially on any major earnings adjustments – before their results are released.
Here are 3 ASX shares that may be among those likely to deliver a surprise in terms of either earnings, outlook guidance or capital management at or before reporting season.
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FlexiGroup Limited (ASX: FXL)
With the FlexiGroup share price down around 35% since the start of the year, despite improving fundamentals, it's clear in my opinion that this point-of-sale finance provider has been left oversold in the wake of COVID-19. I expect the commentary at full year to provide greater insight into FlexiGroup's digital offering – mainly under the Humm brand – and how that has helped to add new customers to its platform.
Much of the company's recent trans-Tasman customer growth – now 2.1 million – can be attributed to its diverse business model, which includes buy now, pay later (BNPL), credit cards and SME lending. Equally encouraging is the 'stickiness' of its customer base, with those using one of its payment products doing so on average 9 times a year.
While the FlexiGroup share price soared 12% following its recent market update, which included revelations its customer base exceed 2 million, it has not enjoyed the same manic party experienced by its all-star peers Afterpay, Zip, and Splitit.
I'm expecting the full result to include supporting commentary around the company's recent turnaround. This should help to woo those investors who still view the stock under its former guise as a struggling consumer lender.
In my opinion, those who buy at current levels, and before the full year announcement, should not be disappointed 12 months from now.
Sydney Airport Holdings Pty Ltd (ASX: SYD)
Despite being one of the hardest hit by the shutdown in domestic and international travel due to COVID-19, I think investors in the airport will be rewarded for staying the course over the longer haul. I believe the stock is well capitalised to weather a more protracted recovery.
I expect the market to reward any sliver of blue sky announced during reporting season by pushing the Sydney Airport share price – currently down around 40% on its February high of $9.04 – higher. The airport will also benefit from a recalibration of the COVID-19 crisis, which is now less about eradication, and more about containment.
Total passenger numbers were down 97.4% in May and will remain similarly low until government travel restrictions are eased.
While domestic and international passenger numbers aren't expected to return to pre-COVID levels until 2023 and 2024, respectively, it's important recognise the near-monopoly status of this infrastructure asset, and how that underscores its core earnings. I suspect, that within short-order, analysts will recognise the futility of benchmarking Sydney Airport by its pre-COVID highs.
I'm of the belief that if you enter this stock for a long-term play, at current levels, you won't look back in anger. Watch out for any announcements during reporting season of new lease agreements with luxury brands, plus further updates on its hard infrastructure investments, and updates on its covenant position.
Centuria Industrial Reit (ASX: CIP)
Australia's largest domestic pure-play industrial REIT, Centuria Industrial has arguably crawled out from under the COVID-19 mockers with one of the finest set of numbers. Centuria has pre-empted reporting season with an announced uptick in the value of its portfolio by an estimated 1.3%, or $21 million.
Much of the strong showing in its industrial property comes from the defensive nature of its industrial occupiers, with ongoing demand from e-retailing, online grocery shopping and packaging requirements providing an added kicker.
But these are preliminary revaluations, and I'm assuming there's more good news in store the will accompany its full year announcement. I'm going to watch the full year announcement for further insights into how industrial property appears set to ride the post-COVID online sales boom.
Based on this upside and the numbers that Centuria has already reported to the market, I can't see any real justification for the 15% discount the stock is trading at relative to its mid-February high of $3.79.
