The duds and darlings of reporting season

March 01, 2021 15:57

Bella Kidman

Livewire Markets

This time six months ago, when I was sitting at my desk writing a wrap-up of the August 2020 reporting season, I recall using the words "uncertain" and "unprecedented" and labelling the earnings season a riddle.

Well, it's fair to say there's no such puzzlement this time. In what amounts to a stunning 180, February rewarded hopes that guidance would improve, companies would increase dividends, and stellar results would return to the ASX.

It wasn't all positive. Not everyone gets a podium finish after all (and as I write this it's fair to say there are a few still out on the course). In the following wire, I nominate the winners, losers and also-rans of February reporting season, with a special view to those companies Livewire readers themselves named as their top stock picks for 2021 in our year-end reader survey.

Key takeaways of February 2021 reporting season

Winners

Of the 228 companies that reported, 51.8% beat market expectations. To put that in perspective, the August 2020 reporting season saw only 37.6% of companies beat market expectations.

The star performers of the month included Commonwealth Bank who increased dividends by 55%, Fortescue Metals Group whos profit was up 67% year on year and even Dominos Pizza dishing out a tasty dividend of 88.4 cents. The winners were dominated by banks, miners and so-called COVID-19 losers, a vast difference from the previous reporting season which saw technology and e-commerce stocks in the winner's circle.

ALSO-RANS

February 2021 reporting season saw 37.7% of companies meet expectations. Typically, investors would be rejoicing at companies meeting expectations, and breath a sigh of relief.

However, if February taught us anything it's that it's simply not enough to meet expectations. Zip Co, the silver player in the Buy Now, Pay Later game released their results, generally in line with market expectations and offering positive guidance. The stock dropped just under 15% in two days, despite announcing a jump of 131% in income year on year. This was enough to make any investor stand back, scratch their head and wonder what just happened.

Losers

Finally, there were few laggards of the month with only 10.5% of companies missing expectations. Surprisingly, tech superstars which dominated the headlines in 2020 experienced profit cuts and share price falls. Aussie AI giant Appen missed on all expectations, revealing an earnings slowdown, an uncertain outlook and a downgrade relative to consensus 2021 EBITDA expectations. As such, Appen is down 35% over the last two weeks, with the result adding fuel to the fire. Is this the end of the road for tech companies, or will Appen experience a turnaround story for the books?

Livewire readers' most-tipped stocks

Throughout the month of February, we provided Livewire readers with an update on your most-tipped stocks following the release of their result, plus a few others. You can find the coverage here:

At the risk of spoiling an update on our most-tipped small and large-cap wires (scheduled to be released at the end of the quarter), Livewire readers may be disappointed to find out that only one of the above stocks is in the green post the release of their result.

Who would have thought, out of 15 ASX stocks, when 51.8% of results beat expectations, that the only company to perform post result would be EML Payments.?

A laggard in 2020, only up 45% year on year, EML was looking like a catastrophe. And this could have been exactly why the share price rose 20% after the release of the result. Again, it simply isn't enough to be in line with expectations, you have to materially beat them. Shane Fitzgerald of Monash Investors Limited noted that given the level of short interest, investors were anticipating a disaster.

"I think people are excited that there wasn't a disastrous financial result. I also suspect that there was an element of short coverage here, the level of short interest at 6% is a record high for the business."

The biggest loser of reporting season was, of course, Appen, down 18% since the release of their results. The data giant, who is sitting in the number 9 spot in your most tipped large caps, had a series of disappointing numbers across the board. But, should you give up hope? Mason Willoughby-Thomas of Ausbil Investment Management, is thinking of this downgrade as an opportunity to get your hands on a high quality company at a discount.

"The company continues to grow at a healthy pace (in US$ terms) in a challenging operating environment. So after a heavy derating and some of the heat removed from consensus expectations (no longer a consensus long) - now might be a window of opportunity!"

As February comes to a close and we enter the Autumn months, it's hard not to be impressed with how well reporting season delivered for investors.

From all the team at Livewire, we hope you enjoyed our coverage. If you'd like to provide us with feedback, please do get in touch by leaving a comment down below or through the contact button.

It's not over yet!

This week on Buy Hold Sell, Matthew Kidman will be wrapping up reporting season with Michelle Lopez and Simon Shields. For our new segment, Questions Without Notice, we want you to send in your questions about the month that was. We will put our guests on the spot, and they will have to answer without any preparation. Please get in touch with your questions by leaving a comment down below.

........

Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.