Although expectations weren’t high going into the first-half profit reporting season, the results generally provide more comfort for the optimists than the pessimists.
Every six months, Wren Advisers collects and collates profit data from a sample of nearly 200 companies to assess the overall health of the Australian corporate sector. Our latest survey of 188 companies that reported during February 2015 shows that businesses are generally coping well although trading conditions remain challenging. Sales growth across the sample averaged 4.7% during the six months to 31 December which is roughly in line with the post-GFC trend but down on the previous six months.
The picture is similar for net profit where growth has slowed since June but is still up a respectable 8.8% up on last year and margins are holding up well. Some of the standout performers on these two criteria were Aveo Group (AOG), TFS Corporation (TFC), APA Group (APA), Nine Entertainment (NEC), Folkestone Education (FET) and credit provider Money 3 (MNY).
But there were also some less encouraging signs that are worth highlighting. Earnings per share growth is roughly half that of overall profits, the outlook statements are mostly cautious and the number of loss-making companies is on the rise again, particularly in the resources sector.
Even the rise in dividend payments is worrisome with 43% of the sample lifting their dividends by more than the growth in earnings. This is not sustainable in the long-term but with interest rates at record lows, boards are under pressure to keep dividend yields high.