There was quite a lot of trepidation leading up to the latest profit reporting season in February, especially given all the talk about recessions, rising inflation and so on. As it turned out, these fears were largely misplaced and the overall numbers were nowhere near as dire as predicted.
We collected data on 275 companies and while some metrics were down on their historical averages, there is nothing in the numbers to justify alarm.
The whole rationale for higher interest rates is to take some of the heat out of the economy and that’s what seems to be happening.
Consider the summary table below.
| For period to: 31 December 2023 | Current | 10 Year Average |
|---|---|---|
| Companies in sample | 275 | 269 |
| Median sales (%) | 7.9 | 7.3 |
| Median Pre-Tax Profit (%) | -0.5 | 4.4 |
| Median Net Profit (%) | 8.8 | 9.0 |
| Median EPS growth (%) | -0.3 | 3.1 |
| Median Net Margin (%) | 8.3 | 1.2 |
| Median Dividend Yield (%) | 5.4 | 4.8 |
Median sales growth was 7.9%, marginally higher than the ten-year average, and net profits grew by 8.8%, roughly in line with the long-term average. If you exclude the real estate sector which was affected by negative property revaluations, the figures are even better.
On the plus side, dividend payments hit a record high of 77.0% of earnings, surpassing last year’s peak of 72.9%. This has historically been regarded as a positive sign because it suggests that companies think profits will be higher in the future. That is, they are not hunkering down and conserving cash by trimming dividends.
- The best performing sectors were gold, financials and technology. The worst were resources and real estate securities.
- It is amazing how popular yet unprofitable some companies are. In particular, Temple & Webster (TPW), Baby Bunting (BBN) and Adairs (ADH).
- There were plenty of loss-making technology stocks, notably NEXTDC (NXT), SiteMinder (SDR), Iress (IRE), Bravura Solutions (BVS), Appen (APX) and Superloop (SLC).
- Investors still have an enduring love for retailers. This is no doubt due to the prospect of lower interest rates but the gap between the latest profit growth and the share price reaction to the news is stark. Earnings for the retailers below were down by an average of 8.7% but their share price jumped by 9.7%.
- It is remarkable how much money some companies get in the front door and how little flows through to the bottom line. Pharmaceutical supplier EBOS Group (EBO) generated revenue of $6,583 million and made a profit of $137 million, a net return of just 2.1%. Ampol (ALD) had sales of $37,749 million and finished with a net profit of $600 million – a 1.6% net return.
- It was noticeable how broad the increase in operating costs has been. Wages, raw materials, borrowing expenses, rents, marketing and administration have all increased.