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Tue, Jul 27, 2004 - Page 12 News List

Aussie firms to post strong profits

EARNINGS REPORTS Analysts expect that companies will show good growth in profitability, with demand from China identified as a top contributing factor


Australia's publicly listed companies are tipped to produce their strongest earnings growth in a decade when the reporting season gets underway this week, analysts said yesterday.

The global economic recovery, robust domestic demand, a softer Australian dollar and strong demand from China for local commodities will underpin the expected bumper reporting season.

Macquarie Bank analysts suggest earnings growth will come in at around 15 percent for the financial year ended last month.

The analysts also said that several companies have already whetted expectations by upgrading profit forecasts.

"I think sentiment is good going forward for many companies," said Grant Williams, a director at Reynolds brokers in Sydney

"If you take economic activity for the past few years, Australia has done very well," Williams said.

"Overall, many more companies are expected to have good news than bad news, which is the reverse of the normal situation," the Macquarie analysts said.

Rio Tinto will be the first of the market heavyweights to announce its earnings on Thursday, among some 60 companies presenting half-year results, while an additional 130 companies will report for the full year.

iron ore

Rio and fellow global miner BHP Billiton are among those most likely to post a surge in profit as the contracts to supply iron ore to China continue to roll in.

"Oil prices are doing well and commodity prices are up. I think for BHP, the market is expecting strong cash flows coming through," said Williams.

Mining company revenue is earned in US dollars but must be translated into Australian dollars. Such revenue will benefit from an easing against the US unit in recent months from US$0.80 in February.

"The easing in the Aussie has helped, sitting in the low 70s rather than up around 80," Williams said.

Other sectors expected to deliver strong earnings growth include insurance companies, which are benefitting from high-performing equity markets, and media stocks on the bank of improved advertising revenue.

Citigroup analysts forecast record profit for Qantas as cost cutting flows through to the airline's bottom line, while insurance giant AMP should report improved cash flow and higher value for new and existing business.

special dividends

Shareholders will be looking for higher or special dividends or even share buybacks given higher corporate cash reserves. Goldman Sachs JB Were analysts have identified at least a dozen companies in a position to reward investors.

"You could also see more takeover activity. You often find that companies with a lot of cash may be inclined to look for acquisitions," Williams said.

At the same time, analysts have warned investors not to expect the stellar run to continue.

"As far as the outlooks go, you may well get a theme of companies warning that perhaps the climate won't be as good in 2005 as what it has been," said Goldman Sachs JB Were dealer Patrick Crabb.

With the Australian stock market having already priced in the strong results, Crabb said that the actual profits were not expected to drive the market much higher, mirroring the current similar trend in the US.

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