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Saturday, December 10, 2022

Australia’s economic outlook uncertain amid Covid

economic outlook

With the Delta variant and declines in commodity prices from record highs threatening a recession, buy-side analysts and investors have downgraded earnings and dividend forecasts

An Australian earnings season bonanza for shareholders has masked a more uncertain outlook for the corporate sector as the Delta COVID variant threatens the economy.

Australian-listed companies delivered a record A$38 billion (US$28 billion) in promised dividends to investors in the season that ended this week, led by banks and mining companies. However, companies had much less to offer when it came to the corporate outlook.

Companies really pulled back on giving outlook statements given the uncertainties, said Brad Potter, the head of Australian Equities at Tyndall Asset Management. I think the resilience of the economy has been amazing but given the situation that we’re in, I don’t think anyone is particularly bullish.

Eikon data shows earnings reported by Australia’s top 200 companies in August for the 2021 year came in slightly above expectations, even as the pandemic threw most of the country into lockdown.

However, with the Delta variant and declines in commodity prices from record highs threatening a recession, buy-side analysts and investors have downgraded earnings and dividend forecasts.

Following a 37% rise in aggregate reported earnings by the 156 companies covered by Citigroup in fiscal 2021, the broker cut its forecast for fiscal 2022 by 2.9% to A$124 billion (US$92.03 billion). That included a cut of nearly 5% for the banking sector, due to soft core earnings prospects and nearly 4% for mining companies, driven by sharp declines in iron ore prices.

According to JPMorgan, dividend consensus expectations for the year also fell by nearly 3.1%.

It does seem that the upward revision momentum in the near term has slowed down, Credit Suisse portfolio manager Mike Jenneke said.

On a calendar year basis, global earnings are expected to grow 8% in 2022, after a 46% jump in 2021, according to Credit Suisse.

In Australia, more than A$18 billion (US$13.36 billion) worth of share buybacks have been announced on top of the 80% jump in dividends declared during the reporting season, while record M&A is expected to deliver an extra windfall.

There’s a whole lot of cash that is going to be hitting investor’s bank accounts over the next few months from those dividends, said Hugh Dive, Atlas Funds Management Chief Investment Officer.

He said: Looking ahead is a bit uncertain, even for the companies that have done very well and are tracking very strong numbers, it’s going to be difficult for them to keep going.


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