With the latest profit reporting season now over, apart from a few stragglers who haven’t managed to file their accounts yet, it’s a good opportunity to examine some of the broader trends taking place in corporate Australia.
On the surface, the latest earnings results look solid though uninspiring. As shown in the table below, sales are up about 4.5% on last year, net profits climbed 4.4% and dividend yields are currently about 5%.
Wren Advisers Earnings Database
For period to:
31 December 2012
|Companies in sample||138|
|Median sales (%)||4.5|
|Median Pre-Tax Profit (%)||5.0|
|Median Net Profit (%)||4.4|
|Median EPS growth (%)||1.2|
|Median Net Margin (%)||12.7|
|Median Dividend Yield (%)||5.0|
But when you delve into the numbers a little more deeply, there are clear signs of stress.
Perhaps the most disturbing trend, particularly if the latest rally is to continue, is the anaemic growth in earnings per share (EPS) of 1.2%. EPS can grow at a slower rate than profits for a whole host of reasons – e.g. the company might issue more shares to pay back debt or buy another business that boosts total profits but not on a per share basis – but when viewed in the context of weak and deteriorating business confidence, it suggests that times are tough.
This is also reflected in dividend payments. Only 46% of companies lifted their dividend compared to a year ago, the lowest proportion since the June half in 2009. With the payout ratio – the proportion of earnings paid out as dividends – at an historically high 68%, it’s hard to see dividends going much higher in 2013 unless profits start to pick up.
The main positive to emerge from the latest results is that net profit margins are at record levels with companies offsetting sluggish revenue growth by cutting costs.