Earnings season insights part 1 |
Tweet | ![]() |
<p><strong>Glenn Freeman</strong>: Now that earnings season for the full year 2018 has wrapped up. I am speaking with Peter Warnes from Morningstar about a season that he saw as largely in line with expectations, but there are a few standouts including the resources and health care sectors and also within the dividend space where the payout ratios continue to be quite high.</p>
<p>Peter, thank you very much for your time today.</p>
<p><strong>Peter Warnes</strong>: Happy to be here, Glenn.</p>
<p><strong>Freeman</strong>: Now, we've seen that another earnings season that's been crossed off the list, another full year season. Overall, you've said that it was pretty pleasing results across the board and it was well anticipated by the market and by our analysts here inside of Morningstar. So, can we talk through a bit about what your thoughts are in general terms.</p>
<p><strong>Warnes</strong>: Glenn, I mean, overall, the reporting season was – as I said pretty good. Average increase in earnings for the ASX 200 was about 9%, resources doing much better than the rest of the market up about 20% or a bit more. And the ex-resources only up about 5% or 6%. Weighted average being affected by banks and telcos. So overall a good reporting season. But I think the highlight really was the dividends – dividend growth exceeded earnings growth which is always a nice way to finish for shareholders.</p>
<p><strong>Freeman</strong>: Well, just on that – I mean, how did the total payout figures this year compared to last year. And is it something that you think is sustainable that they can stay off at these levels going forward or is it have we seen a peak in dividends.</p>
<p><strong>Warnes</strong>: Glenn, that's a very good question, because all shareholders like to bank the dividends couple of times a year. Look this year I suspect what was happening was that management decided early on maybe they weren't going to pull the trigger too much on investment and their balance sheets were in pretty good shape. So, they didn't have to pay down a lot of debt and they didn't really push the paddle on investments so that that allowed management to reward shareholders more. Free cash flow was only got three buckets. And so, we didn't have paydown too much debt, we didn't push our foot to the floor on investment and so that gave them more allocation for shareholders. And payout ratios generally rose because of that. Ratios are higher and as well few more share buybacks. So capital management initiatives were front and center.</p>
<p>Now, my gut feel is that's not going to be sustainable and so I think what you are going to see is a flattening in the payout ratios and lesser dividend growth going forward. But this year in the numbers I have seen total dividends for the reporting season just passed was about 40 billion up from about 35 billion last year which is a bit more than 10% and I said that the overall earnings were up about 9%. So that's – that lines up there. As I say I think the payout ratios will start flattening from here on in as maybe hopefully and certainly the reserve banks hoping that non-resources or non-mining investment starts to kick up.</p>
<p><strong>Freeman</strong>: Are there any red flags in that result, in the dividends specifically again that – their CapEx is too low, that businesses are there bit skittish and not wanting to necessarily grow their businesses around uncertainty or is it just something that it is happening in a more balanced fashion way they are not investing all their free cash into growing businesses and they are not paying it all out either they are kind of balancing it.</p>
<p><strong>Warnes</strong>: Yeah, well, look, all businesses are trying to run lean – I mean, as I said, the results were pretty reasonable. What was a little bit disappointing and where you saw initial market reaction was negative was if the forward guidance now there was guidance 2019 was a bit soft. Generally speaking it was soft or softer than anticipated by consensus – the consensus view out there and you show quite a number of analyst downgrades because going forward the guidance just didn't match up. So, as I said the companies are running lean. They really are saying margin pressure is quite intense and going forward I think it's quite at peak out there it's – the horizon has got some clouds on it. I don't think, and I think that's one of the reasons why you are not getting wages growth to the extent that the reserve bank would like or the results probably should – would suggest.</p>
<p>Because management don't want to increase one of their major expense items is wages and salaries. If they tweak the wage rates, their locking them in. What's happening is that there is more over time and there are more numbers employed and that's what's supporting household income at the moment. Not higher wage rates. And so, you've got raw material cost – imported raw material costs going north. You've got energy costs still being very significant part of the whole equation. And so managements are little bit gun shy, and they are saying okay look we just – let's just wait a second before we guarantee, we are going to push the button on major growth expansion.</p>

11/05/2022 Here's what investors who are worried about a recession should consider today.

11/05/2022 Morningstar analysts have identified TPG telecom as the most undervalued telecom stocks in the ASX 200 detailing multiple catalysts for earnings recovery and growth.

29/04/2022 Exclusive: Hermitage Capital Management CEO Bill Browder talks Putin, Russia, and the next six months for Ukraine

28/04/2022 Inflation, rising interest rates, geopolitical risks, and other things to keep your eye on.

27/04/2022 Morningstar's analyst talks about the Buffett's recent deals, what the stock is worth, and whether Berkshire will pay a dividend any time soon.

31/03/2022 Supply disruptions following Russia's invasion of Ukraine are forcing analysts to consider the possibility elevated prices persist.

30/03/2022 Rising interest rates, strong economic growth and cheaper valuations are driving banking stocks ahead of the broader market.

28/03/2022 Where are entertainment and streaming services headed?

24/03/2022 Problems in global supply chains are an opportunity for WiseTech as its logistics company customers move to replace old software.

23/03/2022 Markets focused on floods and bushfires are missing how insurers are cutting costs, doing more digitally and are looking down the barrel of a lift in investment income.

17/03/2022 Morningstar Investment Management's global CIO Dan Kemp explains why well-intentioned investors desperate for peace in Europe are making dangerous market calls

15/03/2022 Knowledge of the local market, strong branding and a growing subscription service should see the undervalued retailer retain market share in the rapidly growing online sales category, says Roy Van Keulen.

08/03/2022 Higher inflation, rising interest rates and booming commodity markets are driving a major rotation away from the post-pandemic winners, says Tim Murphy, Morningstar director of manager selection.

03/03/2022 Regulators are likely to be less lenient now the buy-now-pay-later sector is part of the fabric of Australian payments.

23/02/2022 Strong commodity prices, cheap valuations and a head start on interest rate hikes means emerging markets are set for strength, says Dr. Joseph Lai of Ox Capital.

23/02/2022 A belligerent speech from a president signalled the start of the latest phase of Russian agression last night, causing markets to wobble and investors to wonder.

15/02/2022 In an extended interview, Morningstar's Peter Warnes discusses the bear market in US technology stocks, interest rates and growth and his approach to investing outside the US and Australia.

13/02/2022 Morningstar equity analyst Shaun Ler explains why he see valuation upside high for MFG even as shares lose steam.

31/01/2022 The Chinese lunar year is almost over, and what a ride it's been. Morningstar speaks to JPMorgan Asset Management strategist Mike Bell about what's ahead.

23/01/2022 Christine Benz discusses how investors should handle the turmoil, whatever the life stage.

18/01/2022 Empty shelves will negatively impact supermarkets in the second half of fiscal 2022 but the impact on long-term earnings is minimal, says Morningstar analyst Johannes Faul.

17/01/2022 Bank earnings, house prices and China risk: Our experts and analysts discuss what they've got their eyes on in 2022.

24/12/2021 Our experts and analysts weigh in on what mattered for investors last year.

21/12/2021 New products, lower fees and a portfolio of undervalued stocks set to help the fund manager right the ship.

10/12/2021 And how does it match up against gold?

10/12/2021 Australian miners to be among the last standing as coal use fades.

08/12/2021 Rebalancing your portfolio is one of those beneficial habits that’s easy to let slide. But year-end is an ideal time to check how your portfolio is tracking against your target asset allocation.

03/12/2021 The gold-rated fund manager shares three ideas with long-term potential.

01/12/2021 Long-term investor sees opportunities where businesses are moving towards a zero-carbon future faster than governments.

30/11/2021 To understand your fund, get to know its underlying index.

29/11/2021 These companies are set to profit from the move to clean energy, says Lazard.

24/11/2021 The results of the COP26 climate summit suggest coal demand is likely to persist for longer than expected.

17/11/2021 And how investors can protect their portfolios.

08/11/2021 Morningstar thinks these moaty companies will remain resilient in the face of inflation and ongoing supply chain challenges.

05/11/2021 Morningstar maintains fair value despite a fall in margins and slower progress on cost reductions.

19/10/2021 These new US-listed exchange-traded funds will invest in bitcoin futures, not bitcoin itself.

15/10/2021 The ESG outperformance narrative is flawed, new research shows.

06/10/2021 Investors may need to hold more growth assets over the coming years, says Morningstar's Jody Fitzgerald.

01/10/2021 And how G8 Education and Link Administration are positioned for long-term success.

30/09/2021 What Reporting Season August 2021 told investors about the health of the financials sector.

28/09/2021 a2 milk is an opportunity to be greedy when others are fearful.

23/09/2021 Covid's winners and losers are returning to their prior trajectories.

21/09/2021 Sequence-of-returns risk matters for both retirees and savers. Here's why.

20/09/2021 Analysts expect the sector to recover to pre-Covid trading levels once borders reopen.

15/09/2021 Rising customer deposits and access to cheap funding helped Australia's banks stave off net interest margin pressure, but analysts see warning signs.

14/09/2021 Morningstar's Hortense Bioy on how to spot greenwashing and how to avoid it.

13/09/2021 Utilities and infrastructure names battle the impact of covid as private equity and pension funds circle.

10/09/2021 Hydrocarbons poised for a comeback.

09/09/2021 Providers have lifted prices after years of a debilitating chase for subscribers at all costs , says Morningstar's Brian Han.

08/09/2021 What shorting ETFs means for long-term investors.

07/09/2021 Morningstar senior analyst Grant Slade says Brambles secular growth trend is intact despite nearterm headwinds. He discusses results from the building and construction materials sector.

03/09/2021 Miners bask in the glow of iron ore prices while bargains remain in coal.

23/08/2021 Post-merger Woodside would be well positioned to deliver on the value we've seen for a long time, say Morningstar analysts.

16/08/2021 But the sector lacks uniformity, says Morningstar's Christopher Franz.

11/08/2021 Higher wholesale electricity prices bode well for AGL, according to Morningstar senior equities analyst Adrian Atkins.

11/08/2021 Morningstar FundInvestor editor Russ Kinnel describes some direct and indirect hedges for inflation protection.

10/08/2021 Copper and iron ore have benefited materially from China’s stimulus and the developed world recovery. But Morningstar analyst Mat Hodge see these benefit as transitory.

05/08/2021 We believe the transaction has a high chance of succeeding.

03/08/2021 The industry still has significant growth potential.

03/08/2021 Is one of the biggest sponsors of the Olympics positioned for an all-electric future?

23/07/2021 Morningstar's Lex Hall talks micro-cap stock picks with Carlos Gil, chief investment officer at Microequities Asset Management.

22/07/2021 Mornngstar's Lex Hall catches up with Carlos Gil, chief investment officer at Microequities Asset Management.

21/07/2021 The head of Australian small and mid-cap stocks at First Sentier Investors has her eye on ARB, Breville and IDP Education.

20/07/2021 The strong performances of global stock markets in 2020–21 are unlikely to be repeated in the coming year says Morningstar's Peter Warnes.

12/07/2021 Morningstar equity analysts warn that equities remain overvalued despite Australia's strong economic recovery.

08/07/2021 Private equity is an exciting area for investors, with lots of hotly-tipped stocks. But there are risks to be aware of, says Pitchbook analyst Dylan Cox.

08/07/2021 Warryn Robertson is looking at French infrastructure, retail pharmacy and tax services.

06/07/2021 Australia's largest banks have excess capital because they cut dividends, were more conservative on lending, divested assets and raised equity last year. Morningstar's Nathan Zaia thinks most of it should be returned to shareholders.

02/07/2021 PEXA burst onto the ASX this week in the biggest float since 2019. Morningstar's Gareth James gives his take on the company's future growth prospects.

30/06/2021 Iron ore prices have been on a tear, boosting the profits of Australia's top miners. How did we get here and is the only way up? Lex Hall sits down with Morningstar's Mat Hodge.

28/06/2021 Morningstar has recently initiated coverage of a food delivery app and a consumer finance product.

24/06/2021 Meeting the deluge of demand is the biggest task for US companies, says Bell Asset Management's Ned Bell.

22/06/2021 Are there still opportunities in the biotech sector now the covid-19 vaccine roll out is underway? We ask International Biotechnology Trust manager Ailsa Craig

21/06/2021 Morningstar's director of Asia equity research is confident the e-commerce giant will bounce back.

18/06/2021 A wide moat and attractive dividend potential are among the key takeaways of Woolworth's decision to demerge from the liquor and hospitality group.

15/06/2021 Lazard Asset Management's Warryn Robertson explains how companies in the Global Equity Franchise fund have adjusted to covid, and assesses the threat of rising inflation.

11/06/2021 Magellan's Craig Wright tells Emma Rapaport why it is leading the charge in the active ETF arena and how its global equity product works.

10/06/2021 Callum Burns of ICE Investors explains his conviction in pharmaceutical distributor Ebos, PSC Insurance Group, and elite sports analytics provider Catapult.

09/06/2021 Callum Burns explains how ICE Investors identifies companies with original products and sticky customer bases.

08/06/2021 They’re building an empire.

07/06/2021 A year ago the oil price went negative. How have oil giants handled the past 12 months and what's the outlook from here? Morningstar analyst Allen Good explains.

04/06/2021 As the investment world goes crazy for crypto, Morningstar Investment Management's Dan Kemp explains what to consider before putting it in your portfolio

03/06/2021 The airline sector is set to recover as international travel resumes. Morningstar analysts think Wizz Air offer the best opportunity among low-cost carriers.

28/05/2021 4D Infrastructure's Sarah Shaw outlines the investment case for Spanish multinationals Cellnex, and Iberdrola, and the potential of Mexican airports.

28/05/2021 The SEC continues to sort out its regulatory concerns.

27/05/2021 We’re raising our fair value as sales hit new highs—but investors need to put it in perspective, says Andrew Willis.

25/05/2021 Covid-19 has enhanced rather than impeded the future for global infrastructure, says Sarah Shaw of 4D Infrastructure.

24/05/2021 Tribeca's Jun Bei Liu also explains why she sees opportunity in sleep apnea specialist ResMed as well as Treasury Wine Estates.

19/05/2021 American Century Investment's Patricia Ribeiro sees growth in Chinese battery technology, biologics, and building materials in Latin America.

18/05/2021 Robotics is a fast-growing area of tech, creating opportunities in medical, logistics and life sciences sectors and much more.

18/05/2021 Square's Bitcoin purchase is more marketing than operations

10/05/2021 If Elon Musk ends up delivering, we might need to raise our fair value to US$1500 a share.

07/05/2021 Banks and resources are poised to deliver dividends, and Treasury Wine Estates and BNPL are worth a look, says Jun Bei Liu of Tribeca's Alpha Plus long/short fund.

05/05/2021 Digital banking, ecommerce and 5G are among the key trends set for rapid growth, says Patricia Ribeiro of American Century Investments.

04/05/2021 Analysts have made changes to the fixed interest, property, cash and equity allocations of Morningstar's Model ETF Portfolios to take advantage of the current market environment. They've also refreshed some of the funds in the portfolio.

30/04/2021 The stock market and the economy are not the same. Here's why.

23/04/2021 EARTH DAY 2021: Why should investors care about deforestation and how can it can be taken into account within an investment portfolio?

21/04/2021 Do investors need to worry about inflation, and how do you prep your portfolio to protect you from it? Morningstar Investment Management's Dan Kemp explains.

20/04/2021 Values-based investing is ultimately up to the investor.

16/04/2021 Amazon.com and ServiceNow are looking increasingly attractive.