Reporting season week 2: a brutal week for some

Welcome to the second episode of '4-minute Monday', a special series from Nikko AM built around ASX reporting season. Each Monday, I sit down with the team and summarise highlights of the prior week to give investors a pulse of company earnings as well as forward-looking views into upcoming results. I hope this material helps you make sense of the deluge of announcements typically associated with earning months.

Week two was a brutal week for some as we saw a hat-trick of misses, with result, outlook and revenue all down for one company. In this wire, I discuss the standouts results of week two, my thoughts on CBA's report and who I'm looking forward to reporting this week. 

Despite Ares dropping its takeover bid, it is working on options around purchasing AMP Capital only. However, this is probably a suboptimal outcome for shareholders. No final dividend was announced, which probably doesn't surprise, but the board is certainly committed to restarting capital management going into 2021.

While the company remains on a long-term transformational path and committed to delivering its $300 million of costs out by FY22, at the present time it's a difficult stock to own.

Commonwealth Bank announced an interim dividend of a $1.50 per share, which is 55% higher than the previous one, but 25% down year-on-year. Was the result consistent with your expectations?

The CBA (ASX:CBA) result was a typically solid one. It was about 4% above consensus, but this was really driven by the expected very low loan losses that are evident across the entire banking sector. The dividend was up strongly, but still below the guided payout ratios. We expect this will move back up to the higher 75 to 80% range in subsequent years.

CBA currently has a large surplus of capital helped by their recent asset sales and this is expected to come back to shareholders in the form of higher dividends or buybacks over the next few years. Cost certainly disappointed, however this was exacerbated by further remediation costs and also some additional investment. Loan growth was probably the highlight with CBA exceeding system in both mortgages and business lending. However, CBA remains one of the most expensive banks globally, and it trades on eye-watering premiums to its local peers.

So far, the majority of companies reporting have beaten consensus expectations. Does that surprise you?

It's still early days as a large percentage of companies in the ASX 200 will report this week. In aggregate, the companies reported so far have probably met or exceeded our expectations. We always expected this season to be better than the August 2020 reporting season. However, the number of positive outlook statements we're seeing does surprise somewhat because this was an area where we thought companies may remain cautious. Like many in the market, we were uncertain of how companies were going to present their outlook.

The obvious observation so far is that stocks that have had COVID-19 tailwinds appear to be doing much better than stocks that have COVID-19 headwinds. And we expect this will be the likely story that will continue throughout reporting season.

With a number of big names still to come, which companies will you be focusing on this week?

Week three is always an information overload period as so many companies report. After this week we certainly will get a better pulse on how the listed market is going and, arguably, the economy. Some of the companies that we believe the market will be focused on are Crown Resorts for obvious reasons, and the banks with ANZ, Westpac and NAB reporting.