As ASX reporting season comes to an end, Commsec reflects on the key themes in its 'Earnings season: Half-time report'.
Here's a closer look at some of the insights from the online stockbroking platform's commentary.
By the numbers
As at 22 February, more than 80% of the companies that have reported results managed to produce a statutory profit. Commsec reveals that this figure is well up on the 75% that reported a profit during the August reporting season last year.
In the six months to December 2020, 72 companies, or 85%, elected to pay a dividend. This compares to the 68% which paid a distribution back in June 2020. Of the 72 companies paying dividends, 47% lifted the amount, 15% kept the payout steady and 38% cut their dividend amounts.
Aggregate cash at hand as at December 31 2020 is up 48% on a year ago, most notably boosted by retailers and banks.
Companies need to be agile
Commsec notes that companies that acted quickly and decisively on cutting down expenses and shoring up the capital base, especially via capital raisings or debt, have been largely successful.
Then it was a case of having a plan on lockdown. Certainly, the retailers that either had an online presence to begin with, or were quick to put plans in place, have been hugely successful.
Stimulus is here to stay
There is still abundant stimulus and support being applied to the economy. The Reserve Bank has maintained its stance that support won't be removed too quickly, and that ultra-low interest rates will be maintained for at least another three years.
Commsec hopes to see a transition from government support to a business-led recovery. But a near-term threat for businesses is the imminent tapering of JobKeeper.
Infrastructure to drive economic recovery
There has been a global theme of infrastructure spending to drive economic recovery. Commsec expects spending on infrastructure, super-low interest rates, and a home-building boom spurred on by HomeBuilder (and state-based schemes) to provide the domestic economy with momentum over 2021.
A commodity supercycle taking place?
China's insatiable demand for commodities has helped prop up commodity prices across the board. Iron ore is near 9-year highs. Copper is near 9-year highs. Oil is above pre-COVID levels. The main challenges that counteract soaring commodity prices are the firmer Australian dollar which are at two-year highs of almost 80 cents.
Higher commodity prices means more significant cash flows and propped up dividend yields for ASX mining shares. The likes of Fortescue Metals Group Limited (ASX: FMG) is currently paying a market leading (and sustainable) dividend yield of 9.80%.
Closing thoughts for ASX reporting season
CommSec expects the All Ordinaries Index (ASX: XAO) to be in a range of 7,200–7,600 by end of 2021, with the range for the S&P/ASX 200 Index (ASX: XJO) between 7,000–7,400 points.
Commsec stated that its main concern is determining whether equities have become, or are becoming, too expensive. It cited rising rates as a near-term challenge to interest rate-sensitive sectors of the share market. This has been evidenced in recent days as bond yields have been on the rise, causing sectors such as ASX 200 tech shares to tank.
