Deutsche Bank has this morning released an upbeat assessment of the earning season just passed.
The investment bank noted that notwithstanding a disappointing final week, this reporting season overall was better than the past few have been. Deutsche Bank forecasts for half of companies, versus a 3-year average of 38 per cent, were upwardly revised while aggregate earnings forecasts held broadly steady.
The market was very welcoming of the results, with the S&P/ASX 200 index outperforming global equities by 4 per cent over the past month. The major sectors to surprise Deutsche Bank analysts the most were cyclical industrials and banks while on the downside, resources and defensive names disappointed a little.
Deutsche Bank reported that the low interest rate environment was evident in the latest company earnings as the higher dividend yield has been attractive for investors. Companies understand this and have responded by raising payout ratios, with dividends being upgraded more than earnings. The broker also sees the prospect for further capital management initiatives as it notes that the market's net debt to equity is 35 per cent versus a long term average of 45 per cent.
Looking ahead, Deutsche believes that the low in earnings growth is now behind us, noting that December half weakness was entirely due to the mining sector and that commodity prices had already recovered.
"We expects better growth from industrials, especially the more cyclical names over the next few years as 1) margin forecasts are around decade lows and look to finally be stabilising 2) companies are having success with efficiency programs 3) better revenue growth should appear as the economy re-balances, aided by past Reserve Bank rate cuts that are in the pipeline,” Deutsche Bank reported.