ASX reporting season wrap: My favourite beats, misses and learnings

August 2024 reporting season is now in the rearview mirror but there are plenty of valuable takeaways and lessons we can apply for future earnings seasons. Here are some of my favourite learnings from observing earnings beats/misses and price action.

The Big Beat – Brambles

Brambles (ASX: BXB) operates a rather boring and predictable business – managing the world's largest pool of reusable pallets, crates and containers. But what happens when something boring and predictable delivers a perfect trifecta of beats across FY24 earnings, dividends and FY25 guidance?

Brambles crushed analyst expectations this reporting season. Some of the key numbers include (vs. Morgan Stanley estimates before the result):

• Sales up 8% to US$6.54bn (in line with estimates)

• Operating profit after tax up 19% to US$778m (4.7% beat)

• Total FY24 dividend of 34 US cents (17% beat)

• FY25 underlying profit growth guidance between 8-11% (vs. 7.2% estimates)

The percentages might not seem massive – But for the defensive Brambles, it's pretty significant. This resulted in:

• Day 1: Brambles shares opened 7.3% higher and closed up 9.2%.

• Day 2: Brambles was swamped with broker upgrades. The average target price across six brokers increased 11.8%. The stock opened the session up 0.5% and finished up 5.3%.

• Day 3 to present: The stock experienced a shallow pullback of around 2% over the next four days and is currently back above Day 2 levels.

Brambles daily chart (Source: TradingView)

Key learnings: The other thing to note is that Brambles shares have been trading relatively sideways since April 2023. The extended period of sideways action plus the trifecta of beats, led to an aggressive re-rating.

The opportunity for such re-rates is to buy the open and use that open price as a stop loss. This is often known as the 'buyable gap up' and would have worked for several beats from names including Wisetech, AMP, Orora and more.

The Unacceptable Miss – Megaport

What happens when richly valued tech stocks guide to a weaker-than-expected result in the coming year? Its valuation receives a massive haircut while brokers flip from bullish to bearish.

Megaport (ASX: MP1) reported an FY24 result that was largely in line with analyst expectations, marking a significant turnaround by achieving its first profits across various financial metrics. However, its FY25 revenue and EBITDA guidance were around 6% and 14% below analyst expectations. This conservative outlook, particularly following a year of substantial restructuring and product revitalisation, sparked concerns among analysts and investors.

The share price response was brutal.

• Day 1: Megaport shares opened 19% lower and finished 21% lower.

• Day 2: The average target price across 15 brokers was cut 5.2% to $14.24. Megaport finished the session off worst levels but still down 4.0%.

• Day 3 to present: Megaport is down 8.5% since day 2 close and trading at levels not seen since July 2023

Megaport daily price chart (Source: TradingView)

Key learnings: Megaport's 14% EBITDA miss for FY25 proved particularly devastating for a stock with such a rich valuation. The impact was twofold: An immediate and substantial gap down, followed by persistent selling pressure in the days that followed. This serves as a warning that buying post-earnings dips can be very challenging.

Missing Dividends

There were a number of once-reliable income stocks that missed dividend expectations by a wide margin or worse, declared no dividend. The main ones that come to mind include:

• Aurizon (ASX: AZJ) – FY24 net profit and total dividend missed analyst expectations by 5.1% and 2.2% respectively. FY25 EBITDA guidance was also around 2% below consensus.

• Insignia Financial (ASX: IFL) – FY24 underlying net profit beat consensus by 2% (largely thanks to a $15 million one-off). Despite the solid result, the Board paused dividends to "provide strategic and balance sheet flexibility". This compares to analyst expectations of a 10.5 cents per share final dividend.

• Yancoal (ASX: YAL) – Prior to the company's full-year result, management dropped a bombshell citing "the Board has not declared an interim dividend in respect of the six months ended 30 June 2024, with the retained cash providing flexibility for potential corporate initiatives."

In the case of Aurizon, the stock opened 5% lower on results day and finished the session 8.8% lower. Approximately 29.5 million shares traded hands that day (12-Aug) or more than three times its daily average volumes.

Aurizon daily chart (Source: TradingView)

Key learnings: Dividends are crucial for income-oriented investors and funds. When a reliable dividend stock cuts or pauses dividends unexpectedly, it can face heavy selling pressure the following sessions.

The Unshakable – Austal

Shipbuilder Austal (ASX: ASB) reported a sweep of misses for FY24, including:

• Revenue down marginally to $1.46bn (13% miss)

• NPAT of $14.9m compared to $13.8m loss a year ago (but still a 47% miss)

• Nil dividend (vs. expectations of 3 cents per share)

Now, given what we've said above about missing dividend expectations and large earnings misses – You'd expect Austal to finish the session down somewhere between 5-20%.

Austral opened the session down 6.5% but V-shaped its way back up to breakeven and finished 2.6% higher. And here's why.

1. Austal has net tangible assets of $2.45 per share which provides strong valuation support

2. Austal received an unsolicited and non-binding takeover from Hanwha Ocean at $2.825 cash per share a few months ago

Key learnings: Austal’s strong asset backing and takeover overhang provided a safety net against a poor result. The stock may have sold off in the event of a stressed balance sheet or the loss of key contracts (although both outcomes were unlikely).