Resources softening drags down growth
SHAREHOLDERS should brace for sharply lower profit growth and modest dividends in the upcoming reporting season as consumers continue to reduce spending and resource company profits come back to earth.
Australian companies are also coming off strong growth from last year.
According to consensus forecasts, the average earnings increase for the financial year to June 2018 is expected to be about 7 per cent, compared with about 17 per cent last year.
Topping the list for bad news in the coming month are telcos, banks and retailers.
On the upside, insurers, utility companies and healthcare are forecast to have the biggest profit growth.
However, the main reason for this year’s lower growth is the softer performance of the resources sector.
Last year, resource companies reported earnings growth of 130 per cent. This year it is forecast to be just 20 per cent.
“For the year to June 2018 financials we can expect a sharp fall from what we saw last year,” AMP Capital chief economist Shane Oliver said.
“The overall number is for about 7 per cent growth, including the 20 per cent growth from the resource companies.
“Seven per cent is pretty good – most companies are reasonably confident and we haven’t seen as many downgrades this year.
“Excluding the resources sector ... all other companies are stuck at around 4.5 per cent earnings growth this year, the same as last year.”
Insurance companies, however, are expected to be the outstanding performers, with earnings growth of 37 per cent.
CommSec senior economist Ryan Felsman said investors were showing strong support for the Australian sharemarket, with the ASX 200 at a 10-year high.
The consensus forecasts suggested share price valuations of 15.5 times estimated earnings and dividend yields of 4 per cent, twice that of the US, Mr Felsman said.
“Corporate balance sheets in Australia are in rude good health,” he said.