The hits and misses from reporting season

The COVID-19 pandemic might’ve lowered the bar for some investors, but health-related products, a retail surge and a lowering death rate have seen some surprising winners and losers from the lockdown.

Online retailers, including Kogan and JB Hi-Fi, enjoyed a positive start to reporting season, while blue chips CSL and ANZ both delivered strong results.

As some businesses grew, Qantas saw its profits nosedive 91 per cent due to border lockdowns.

Bell Direct’s market analyst, Jessica Amir, stated that if investors tallied up the 69 companies that have reported so far, the majority (46 per cent) have been in line with expectations, while 35 per cent have been a pleasant surprise, and 19 per cent have delivered sour grapes.

“This explains why the market has not shot the lights out this week, and why you need to focus on picking the right stocks in the right industries if you want to generate above-average returns,” Ms Amir told investors.

The US has shown stronger results than Australia, with about 82 per cent of the S&P 500 having reported results so far, mostly all beating expectations, even though earnings are down 33 per cent year-on-year.

“A big part of the US market are tech stocks, continuing to benefit from the shift to working from home,” she said.

“The tech-heavy Nasdaq flexed its muscle again, knocking the top off its previous all-time highs, helped by Apple, one of the biggest companies in the world, become a US$2 trillion company this week,” Ms Amir explained.

Winners 

Ms Amir highlighted seven companies that beat market expectations last week, including WiseTech Global (WTC), Corporate Travel (CTD), Bapcor (BAP), Mount Gibson Iron (MGX), NRW Holdings (NWH), Pact Group (PGH) and Redcape Hotel (RDC).

“On the positive side, with us spending more time around our humble abodes and more likely to drive than catch public transport – car tinkering is on the up, which is why car parts and servicing business Bapcor (BAP) shone, with sales revving up in May and June and carrying into July [and] Bapcor also reiterating its five-year growth targets with sales surging,” Ms Amir said.

Away from the retail sector, Ms Amir pointed out that companies invested in countries that have recovered from the COVID-19 pandemic are showing strong signs of growth.

“Other key winners this week were those companies benefiting from the China recovery, uptick in mining activity, and the iron ore price trading at a year high, with NRW Holdings (NRW) and Mount Gibson Iron (MGX) – with both packing a punch – expecting growth to continue in FY21,” she continued.

Losers

Ironically the health pandemic has seen a reduction in funerals and funeral-related expenditure, with the two funeral providers tipped to have a weaker outlook into 2021.

“According to the ABS, the death rates are below the five-year average. This is why funeral business Invocare IVC reported a notable miss on market expectations. IVC’s fundamentals remain strong, but given there are more people indoors and extremely health-conscious, there has been less funerals. This is why IVC did not provide guidance for FY21,” Ms Amir said.

While online retail grew, bricks-and-mortar retail suffered due to lockdowns, which saw investors in commercial assets underdeliver on market expectations.

“With lockdowns forcing consumers to remain indoors impacting business, landlords have had to reduce rent for commercial tenants, seeing commercial rent collectors/landlords like Vicinity Centres (VCX) and Dexus (DXS) underdeliver on market expectations,” Ms Amir concluded.

This article was first published on nestegg.