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Elise McKay: The questions to ask this ASX earnings season
August 01, 2023
Full-year reporting season is underway for 2023. Here Pendal investment analyst ELISE MCKAY explains the questions investors should be asking
- Earnings season about more than revenue and margins
- Look for macro impacts, pricing power and AI
- Find out about Pendal Focus Australian Share fund
AUSSIE equities earnings season kicks off this week.
What should investors be looking for in full-year results?
Look beyond revenue and profit margins to how companies are managing the macro-environment, says Pendal investment analyst Elise McKay.
“Have companies maintained the ability to pass through higher prices? What’s happening to wages? Are further cost reduction programs announced?”
“On the revenue side we are looking for the ability of companies to continue to pass through cost inflation, in a slowing economic environment,” McKay says.
“We are also looking for any forward demand indicators – any key performance indicators that will show how the business might perform in future years.
“What will drive revenue? For example, at [milk and infant formula group] A2, what is the birth rate in China doing?
Look at labour
“A key theme over the past 12 months has been availability of labour. We will be looking closely at headcount trends and wage inflation,” McKay says.
“The recent Fair Work Commission decision to lift wages 5.75 per cent highlights the wage inflation issue that we have in the economy.
“We’ve had a number of businesses across the tech sector announce headcount reductions and it will be interesting to see what sectors and companies follow in their footsteps to address their cost bases.
“And then more broadly, how will higher interest rates impact on earnings per share.”
Macro-environment is key
Similar to the June quarterly earnings season on Wall Street, the macro-environment will play an important role, McKay says.
“On Wall Street, up until 28 July, 48 per cent of companies had reported with a better than average result, 55 per cent were ahead of expectations and only 13 per cent missed.
“Yet despite this, the average ‘beat’ has only resulted in the stock going up 28 basis points, versus the average of one per cent.
“So even though companies are delivering better earnings, their share prices aren’t going up on the news.
“The recent market outperformance has been driven by the macro environment, not the earnings. We are still very much in a macro-driven market.”
Keep an eye on AI
McKay says another theme on Wall Street has been artificial intelligence, and she will be watching closely to see how local companies respond.
“You presume locally most companies are thinking about it. It would be a massive red flag if they’re not. You want to understand how companies are thinking about AI as both an opportunity and a threat.”
Find out about
Pendal Horizon Sustainable Australian Share Fund
About Elise McKay and Pendal Australian share funds
Elise is an investment analyst and portfolio manager with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.
She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.
Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.
Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at August 1, 2023.
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