Citi flags solid earnings season for top Australian firms
AUSTRALIA’S biggest listed companies are expected to show solid earnings growth in the forthcoming profit reporting season but not at the double-digit growth rate they recorded last year.
Analysts at investment bank Citi say the market estimate for overall earnings per share (EPS) growth across the top 200 companies is 7.9 per cent in 2017-18, compared with 18 per cent reported growth last year. Citi head of equity strategy Tony Brennan said the exceptional growth in 2016-17 was driven by the resources sector after “some very poor numbers” from 2013 to 2016 in the wake of the mining bust.
A sharp jump in iron ore and coal prices, coupled with cost cutting, drove the jump in earnings growth for miners in 2016-17, benefiting the broader share market.
Now Mr Brennan says strong business conditions have supported company earnings forecasts over the past year.
“The conditions are getting reported as as good as any time in the last quarter of a century,” he said. “That might be hard to believe considering it doesn’t feel like the economy is flying, but ... the companies are telling us that it’s very good out there for them.”
For 2018-19, average EPS for the S&P/ASX200 is expected to be up 8 per cent, supported by the resource sector and an earnings recovery in banks.
Aside from banks exposed to the fallout from the Royal Commission, there have been more earnings upgrades than warnings across the major sectors in the recent “confession season”, according to Citi.
The banking sector is expected to book a 0.8 per cent drop in EPS.
The resource sector is expected to report EPS growth of 23.4 per cent for 2017-18.
Strong double-digit EPS growth is also expected from utility, health care, diversified financials, transport and food and beverage stocks.