Has the ASX AGM season ended whispers of an Australian corporate recession?

Investors love certainty. But in its absence, they (mostly) love a positive surprise. Over the last four weeks, ASX constituents have been holding their AGMs. And in a positive surprise, there were more earnings guidance upgrades than downgrades - with Macquarie’s sell-side equities team arguing there may be more upgrades coming. 

“Not only was there less negative share price volatility, there were more companies upgrading than downgrading guidance. This suggests guidance may have been conservative in August, and we could see more upgrades next reporting season,” analysts wrote. 

But does it mean all the talk of a corporate recession can be put to bed - or much like the macro recession calls, will this just be another can kicked down the road? In this piece, we’ll analyse that exact question. 

AGM and Trading Update Season by the numbers

• Macquarie analysed 145 AGM releases and trading updates

• Share price reactions were rarely material, but there were more underperformers

• 6 stocks experienced >10% moves in their share price on AGM day. Last year, it was 15.

• 80% of companies held firm on earnings guidance

• Of the nine that did change guidance, seven were upgrades.

The money quote

“While EPS growth forecasts have been downgraded, we continue to believe we are closer to the end of the earnings downgrades for this mini-cycle,” analysts led by Matthew Brooks wrote in a note released to clients today. 

“If there is to be debate about the earnings outlook, we think it should centre more on the +10% expected in FY25, as this is potentially a US recession period.”

Sector winners and losers

Only one sector really caught Macquarie’s eye in terms of revisions and on-the-day share price outperformance. Of the eight company updates in the consumer staples space, the sell-side analyst consensus revised up their earnings forecasts by an average of 13%. And Elders (ASX: ELD), soared 18% on the day of its AGM after it flagged as much as 10% earnings growth and a slew of potential acquisitions in its pipeline. Not bad for a business with a 6.4% short interest.

In terms of negative earnings revisions, ASX media stocks did the worst with News Corp (ASX: NWS), Nine Entertainment (ASX: NEC), Seven West Media (ASX: SWM), and Seek (ASX: SEK) all issuing material downgrades. 

Regarding negative share price performances, the ASX healthcare sector performed the worst - but this was primarily driven by Healius (ASX: HLS) which recently completed part of its $154 million capital raise. The raise is being done at a heavy discount - and shareholders have not wasted time in telling management what they think. Healius’ share price is down by more than 50% in the last 3 months alone. 

Healius 3-month price chart (Source: Market Index)

The big red flag

“If there is one clear negative warning in AGM season it is the downside risk for stocks with high labour costs and the inability to pass on those costs,” Brooks and his team wrote. 

Higher costs are a feature of all company operations these days, and the Reserve Bank governor has accepted that the stubbornness of higher costs is making life harder and interest rate setting more brutal. 

From an ASX perspective, it’s perhaps most apparent in the healthcare sector, where labour costs are already high and the propensity to pass it onto patients is small. Brooks and his team say that was extra clear in last month's AGM season updates.

“Ramsay Health Care (ASX: RHC) and Fisher and Paykel Healthcare (ASX: FPH) are highlighted as NEUTRAL rated stocks with high labour costs, yet consensus assumes margin expansion in 2024,” they wrote.