Aussie stocks pullback, confession season commences

<p>Australian stocks were lower by around 0.4% going into the final half hour of trading in Sydney. The next few weeks will feature “confessions” from […]</p>

Australian stocks were lower by around 0.4% going into the final half hour of trading in Sydney. The next few weeks will feature “confessions” from companies who know very well their continuous disclosure obligations and market consensus earnings estimates going into the February reporting period. Integrated Research (IRI) kicked off the confession season late yesterday, advising revenues were below expectations for the six months ending December and earnings would be lower compared to the prior corresponding period. The problem is the market is expecting double digit earnings growth for the company in the June 30 year end period, which will be hard to meet now and brokers are writing down their numbers.

IRI is probably the first in a whole list of companies to hose down expectations. Its shares traded down around 13% going into the close, clearly there is disappointment among traders that the recent price rally since September now seems unjustified. IRI is a software development and consultancy company with exposure to some very attractive products like mass corporate VOIP. It should be doing well, but the impact of lower government spending and paralysis among companies to start spending again is causing an earnings gap.

The rest of the ASX200 index is probably insulated from the above theme, with disappointment in sub $1bn market cap companies unlikely to change the direction of the ASX200 index. BHP, Rio Tinto, Fortescue Metals are all key constituents and should continue benefiting from the solid iron ore price, particularly if it remains above US$150/tonne for a prolonged period of time. The big four Australian banks will benefit from a falling interest rate environment and with the exception of NAB, they should all report earnings within expectations. Newcrest Mining and Woodside Petroleum have room to rise, particularly the latter given prolonged high oil and energy prices.

Overall, the top 30 names on the Australian market represent around 70% of the index. There is unlikely to be much surprise in the earnings of these names, but those outside the top 30 will probably do it tough in meeting expectations over the next few months

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.