Earnings season starts in August when most ASX shares will be delivering financial and annual reports. These will disclose not only how each company has made it through the pandemic so far, but also what they are planning to do in FY21. I am pretty sure that this is going to be the strangest earnings season in my investing career.
ASX shares expecting good earnings
August is likely to bring positive results from consumer staples like Coles Group Ltd (ASX: COL) and Inghams Group Ltd (ASX: ING). Both of these companies are trading at price multiples of around 20, so the market clearly expects good things from them. If results are not strong, then their shares could be sold off.
Investors are also likely to expect strong results from eCommerce companies such as Kogan.com Ltd (ASX: KGN), which posted a 100% increase in sales during the lockdown months. Kogan's profit for the same period also grew by 130%. Other companies with strong eCommerce channels include Temple & Webster Group Ltd (ASX: TPW) and City Chic Collective Ltd (ASX: CCX).
Possible earnings surprises
The ASX shares likely to get solid share price rises this earnings season are going to be those that have done very well in spite of the year we have all had.
Harvey Norman Holdings Limited (ASX: HVN)
Harvey Norman has already given us a bit of a view into its financials. On 23 June, the company announced unaudited results of a 20% increase in profit before taxes for FY20. It is one of the many ASX shares to report an increase in electronics sales, in particular, due to the work from home phenomenon. In a trading update earlier in June, it reported increases in Australia and Ireland through 2H FY20. International sales also benefited from an Australian dollar at lower than historical averages.
Harvey Norman is currently trading at a price-to-earnings ratio (P/E) of 10.83 and a trailing 12 month dividend yield of 5.96%. I think it will surprise investors during earnings season.
DEXUS Property Group (ASX: DXS)
Like many real estate ASX shares or real estate investment trusts (REITs), Dexus is trading at a historically low P/E ratio. In fact, lower than it has been for the past 7 years.
Dexus is a multi-sector property company. In the company's 1H FY20 results, it disclosed that it manages $38 billion in real estate and owns $16.8 billion in office and industrial properties. The company's properties have a weighted average lease expiry (WALE) of 4.4 years. This is basically an average duration of each lease. Dexus also has 97.2% occupancy for its office properties and 96% for its industrial properties.
Dexus has a current market valuation of $10.13 billion, which is 40% lower than its property portfolio value. It is presently selling at a P/E of 6.55 and is paying a trailing 12 month dividend of 5.41%. I think this ASX share will also surprise investors at earnings season, and it looks to me to be a good investment, in any case.
Credit Corp Group Limited (ASX: CCP)
Credit Corp is a little different to the other two ASX shares discussed. Credit Corp buys purchased debt ledgers (PDLs) comprised of distressed consumer debt from Australian and New Zealand banks, finance companies, and telecommunication companies. It then proceeds to collect on these debts at a lower repayment rate. It also provides predominantly 'payday' loans.
This is not a company you want a call from!
On 13 July, Credit Corp announced that it flagged an impairment of approximately $65 million, leaving it with a net profit after taxes (NPAT) of ~$10-$15 million. The company is actively negotiating debt repayments, and has halved the approval rate of its own loan products.
I think there are two ways this can go. Firstly, the company could report slightly higher than expected NPAT, in which case the share price may see a rise. Secondly, the government could announce an extension to the current financial supports, thus allowing repayment plans to proceed. This would also lead to a potential rise in the Credit Corp share price. Either way, I think Credit Corp is in a better position than it appears, heading into earnings season.
