Experts forecast the ASX 200 winners and losers this earnings season

The consensus is for solid results but lower dividends and a weaker outlook.

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ASX 200 share market analysts are expecting solid results but lower dividends and a weaker outlook this earnings season.

This reporting period will provide a good look at how rising inflation and interest rates are really affecting companies' balance sheets.

Many ASX 200 companies are likely not to offer forward guidance due to economic uncertainty.

This may lead to steep price falls for some ASX 200 shares, says Jun Bei Liu of Tribeca Investment Partners (courtesy abc.net.au).

Liu said:

A lot of companies won't give any outlook guidance, just because of how uncertain it is.

So that will lead to revenue and margin downgrades.

There is a known lag effect in the real economy with interest rate rises.

This is because it can take a couple of months for the banks to adjust their product rate settings.

It also takes a while for consumers to change their spending habits.

Some experts say it can take a year for the first rate rise to filter through the economy.

The first interest rate rise was in May last year.

According to Liu, "Consumers have really stopped spending in the last month and a half."

What about dividends?

Andrew Tang, the co-head of investment at Morgans, says he's worried that investors may be disappointed by the dividend payouts this season.

Tang says:

With a challenging economic climate, rising interest rates, rising inflation, I think boards are going to be a lot more conservative with their dividend payout ratio.

For example, we think Commonwealth Bank of Australia (ASX: CBA) will take a more conservative approach and pay at the low end of its payout ratio.

… moving forward, we think dividends will either be flat, or grow ever so slightly.

Let's take a look at the potential winners and losers among ASX 200 shares this earnings season.

The potential winners among ASX 200 shares

ASX 200 financial stocks

Tang says insurance stocks are likely to be winners this season.

He says:

A lot of insurers have seen premiums rise 10%, yet their costs have moderated to around 2–5%.

So taking that together, you've got revenue, climbing 10%.

Secondly, a lot of the insurers have very large investment books. Typically, they invest in products such as very safe government bonds.

Over the last two years, we've those bond yields rise from close to 0% to now 4%.

Several ASX 200 insurance shares have hit 52-week highs in recent weeks.

UBS also backing insurance shares

Top broker UBS also thinks insurers will be winners.

This is due to their "attractive combination of repricing, yield support and reasonable valuations".

For starters, UBS nominates Suncorp Group Ltd (ASX: SUN) as among the ASX 200 shares with potential upside this season.

In a memo, the broker said: "Suncorp has likely been a major beneficiary of early repricing and benign net perils." (Courtesy Australian Financial Review (AFR).)

UBS also expects Medibank Private Ltd (ASX: MPL) and NIB Holdings Limited (ASX: NHF) to be winners.

The broker explains they'll probably report low claims, solid participation, and strong non-resident trends.

UBS also thinks ASX 200 financial shares in the funds management arena may be potential winners.

The broker specifically nominates Hub24 Ltd (ASX: HUB), GQG Partners Inc (ASX: GQG) and Magellan Financial Group Ltd (ASX: MFG).

Magellan has been plagued with issues for several years with declining funds under management.

But UBS says: "We think MFG can also surprise on positive fee margins on mix and FY24 cost reduction potential."

The ASX 200 shares likely to disappoint this reporting season are ASX Ltd (ASX: ASX), AMP Ltd (ASX: AMP), Insurance Australia Group Ltd (ASX: IAG), and Perpetual Ltd (ASX: PPT), says UBS.

Chester Asset Management's Anthony Kavanagh says Computershare Ltd (ASX: CPU) could be another winner among ASX 200 financial shares this season (courtesy AFR).

Kavanagh said:

… we think interest / investment earnings from the likes of the insurers and diversified financials could surprise to the upside.

One example is Computershare which might surprise to the upside on margin income as analysts mark-to-market but it may have softer operational results …

ASX travel shares

Gemma Dale, head of investor behaviour at nabtrade, said ASX travel shares have risen strongly.

This is due to the post-COVID 'revenge travel' trend still being seen around the globe.

For example, Webjet Limited (ASX: WEB) is among the ASX 200 travel shares that have reached 52-week high share prices recently.

Some examples of ASX 200 travel shares and their 12-month performance are shown in the chart below.

But looking ahead, Dale expects things to change, saying:

However, when we look at NAB's consumer confidence surveys, travel is one of the 'top five' things that consumers say they'll cut back on.

There may be some real headwinds for those guys … because consumers are saying, 'I can't afford those overseas holidays from now on'.

And you'd want to look at their numbers, and particularly their outlook statements, to see whether they're looking forward to more strong growth, or whether things are really going to slow down.

The potential losers among ASX 200 shares

ASX 200 consumer retail shares

Ian Patrick, chief investment officer at Australian Retirement Trust, says consumer discretionary share prices are at risk this earnings season.

Patrick says:

Typically, stocks that are involved in discretionary spending — hospitality, sellers of white goods and TVs – those will tend to see their earnings come off.

That's because people just don't have the money to spend on those 'luxury expenses' anymore.

Tang says JB Hi-Fi Limited (ASX: JBH) will be "one of the bellwether stocks" for ASX retail shares.

He says: "We've seen some increase in discounting for a lot of the retailers, and consumer spending amongst some of the discretionary retailers [has] really fallen off a cliff."

ASX defensive shares

Tang says defensive stocks like Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), CSL Limited (ASX: CSL) and Resmed CDI (ASX: RMD) have "very elevated valuations" coming into the season.

He says:

Some of the more expensive stocks in the market – that are having to live up with pretty elevated valuations and expectations – may potentially disappoint the market.

ASX property stocks

Dale will be watching the share prices of ASX property companies impacted by dramatically higher costs.

She explains:

Any kind of construction-related sector or company has been under a fair bit of pressure.

They've found it really difficult to get workers and supplies.

But now buyers are under a lot of pressure with all those interest rate increases.

So it will be really interesting to look at the result of companies like Stockland Corporation Ltd (ASX: SGP), and Mirvac Group (ASX: MGR), and see whether or not the demand is still there.

Liu is concerned about commercial property debt levels and reduced valuations for office buildings.

Now that so many people are working from home, there isn't the same demand for office space.

Liu explains:

During this reporting season, investors will want to know what's their debt level? What's the interest rate they have hedged themselves to, and for how many years?

And most importantly, what is the valuation of their assets? Are they going to write down the value of their office buildings, given that sector has gone through significant devaluations in the United States.

"These companies will have to come clean with what a 'realistic valuation' is. And that might lead to quite a lot of volatility in terms of their share price.

Many real estate investment trusts (REITs) have heavy exposure to the commercial sector, such as Centuria Office REIT (ASX: COF).

These ASX property shares and their 12-month performance are shown below.

Motley Fool contributor Bronwyn Allen has positions in CSL, Commonwealth Bank Of Australia, and Magellan Financial Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Helloworld Travel, Hub24, and ResMed. The Motley Fool Australia has positions in and has recommended Coles Group and ResMed. The Motley Fool Australia has recommended Hub24, Jb Hi-Fi, and NIB Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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