Mining returns to profit glory

IF there is one story bigger than all other others from the corporate results season of the past month, it is surely the return to glory of Australian mining companies.

Chalking up profits that were higher than expected and delivering upbeat assessments of the outlook, miners were the standouts, say analysts.

Earnings per share across the resources sector more than doubled, helping to lift the result for the whole market by about 18 per cent.

Elsewhere, however, there was little to excite. After stripping out the resources sector, earnings per share across the market grew a far more modest 6 per cent, according to UBS analysts. That falls to 4 per cent for the average top100 company.

The rapid improvement in resources results also highlights the vulnerabilities in that sector, as the rebound – like the downturn of recent years – was largely due to movements in commodity prices.

Companies outside banking and resources were among the most disappointing, with insurance and telecommunications reporting the weakest performances and offering the least encouraging outlooks, according to UBS analysts David Cassidy and Dean Dusanic.

“From a sector perspective, resources have been the standout ... on the positive side, with strong cashflow and upside surprise on cash returns,” they say.

Overall, the results were worse than expected and expectations for future earnings across the market have waned.

“Results and guidance have come in on the marginally disappointing side of expectations,” UBS says.

Market forecasts for earnings per share have come down 1 per cent to 2 per cent on average for those companies that reported full or half-year results over the past month, they say.

According to Motley Fool analyst Tom Richardson, out- side the miners, the big story was Telstra’s decision to slash its dividend by around 30 per cent to combat the fallout from the National Broadband Network. “Overall, investors were left underwhelmed as profits largely came within expectations, (and) the lack of upbeat guidance as to the year ahead has left the ASX treading water for the foreseeable future,” he said.

CommSec chief economist Craig James says the results season was “very good but perhaps not great”.

“Almost 91 per cent of fullyear reporting companies produced a profit,” Mr James said.

The long-term average is 87 per cent.