Reporting Season

The Market Index survival guide to ASX reporting season 2023

Thu 10 Aug 23, 2:02pm (AEST)
Green trees standing tall in a forest
Source: iStock

Key Points

  • A stock will react more to whether a company's earnings and guidance beat or miss analyst expectations, than to the absolute level of earnings
  • The market can be volatile in the days following a company's earnings announcement, as analysts adjust their ratings and price targets, and investors react to the news
  • f a company in a particular sector reports strong earnings, it could help to boost the share prices of its peers

August reporting season is getting into the swing of things, with household names like QBE Insurance (ASX: QBE), AGL Energy (ASX: AGL) and AMP (ASX: AMP) posting their results on Thursday.

This earnings season is expected to be a challenging one as rising interest rates catch up to consumer facing sectors and resource companies cycle elevated commodity prices from a year ago.

This will also be a time when your stock theses, market conviction, and emotions will be tested. In light of all this, here’s our survival guide for the August 2023 reporting season.

Note: This article is general information only – it doesn’t consider your personal financial situation, so shouldn’t be considered advice. As always, do your own research and speak to a professional financial adviser before making any portfolio changes or other investment decisions.

#1 It’s all about expectations

It doesn’t matter if a company's earnings double or halve – As long as the results and guidance are ahead of analyst expectations, the stock should be in for a good time.

Suncorp (ASX: SUN) reported its FY23 on Wednesday, 9 August and serves as a good example of a result that looks strong at face value but missed analyst expectations. For the full-year, the company reported: 

  • Cash earnings of $1.25bn, up 86.3%

  • Net profit after tax of $1.14bn, up 68.6%

  • Ordinary dividend of 60 cents per share, up 50%

The net profit figure was a slight miss against consensus expectations of $1.18bn while analysts were expecting an ordinary dividend of 73 cents per share. So the actual result came in about 18% below expectations. 

Suncorp shares opened 3% lower at $13.34 and finished the session down 1.5% to $13.54.

#2 The next couple of days are just as important

As the results drop, the market is a little all over the place as:

  • Traders scalp and form swing positions

  • Investors and institutions are buying and selling

  • Analysts adjust their ratings and price targets

The next day is just as important, given:

  • Analysts release new notes with updated ratings and target prices

  • The results trigger a material re-rating that takes place over the course of days, if not weeks 

  • The stock might be oversold/overbought and bounces/sells off

Shares in Domino’s Pizza (ASX: DMP) tumbled 23.8% on 22 February, the day of its half-year FY23 results. The company missed expectations across the board and downgraded near-term expectations, citing:

  • "Domino's anticipates Same Store Sales growth will be below the medium term outlook of +3-6% growth, as a result of most-recent tumultuous trading conditions.”

  • "New store openings are still expected to be strong in FY23, but may be below the medium term outlook of +8- 10%, depending on franchisee sentiment.”

Post earnings, the average target price across 16 sell-side ratings was cut by 15% to $61.29.

Between 22 February close and 16 March, the stock fell another 17.2% – a painful experience for dip buyers.

#3 Watch out for peers

If a major retailer announces an unexpected fall in earnings – shares in retail peers might also feel the heat. The result may also serve as a read-through for what to expect for other retailers. 

Global building materials company James Hardie (ASX: JHX) posted its first quarter results on 8 August, with figures coming in well-above consensus. North America was a standout region thanks to strong EBIT margins, and the stock finished the session up 14.4%.

On the same day, a peer like CSR (ASX: CSR) rallied 2.5%. 

Building and construction materials supplier Boral (ASX: BLD) also happened to report a better-than-expected FY23 result on 10 August, with net profit up 304% to $142.7m (above consensus expectations of $125m). The stock was up 4.8% as the market opened. 

Likewise, a peer like Acrow Formwork and Construction Services (ASX: ACW) was up 8.2%.

#4 Keep your emotions in check

Reporting season is a fast-paced and high stakes environment that elevates our emotions, which often results in us making the worst possible decisions.

A stock tumbles on poor earnings and an abysmal guidance but you tell yourself “maybe it’ll bounce tomorrow” – Only for the above Domino’s Pizza scenario to play out.

Or maybe you’re holding onto a winner and you’re thinking “I like the outlook but I’m going to take profits” – Only for the stock to continue running. You buy the stock back at a higher price, only for it to top out. 

Stick to your objectives – Reporting season is often the time when short-term trades turn into long-term holds because the trade didn’t work out. Or vice versa, the long-term holder gets caught up in intraday price action. Ignore the noise, stay objective, and have a cracking reporting season.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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