Australia Braces for Tough Earnings Season as Risks Pile Up

(Bloomberg) -- Australian shares are set for a rocky reporting season as threats to corporate profits pile up at home and overseas.

The S&P/ASX 200 Index is down almost 5% this year -- even as earnings estimates rise -- amid intense concern about the impact of tighter monetary policy, the spread of omicron, supply-chain snarls and geopolitical tensions. 

Despite gains in recent days, the country's stocks continue to underperform Asia's regional benchmark, which has pared its losses to 3% since the start of 2022. Dividends provide a potential bright spot in Australia, with mining giants including BHP Group Ltd. and Rio Tinto Ltd. among those tipped to lift payments to shareholders. 

“A slowing cycle and hawkish central banks make for a tough results season,” Macquarie Group Ltd. analysts led by Matthew Brooks wrote in a note previewing earnings for the period through Dec. 31. “Stocks with negative surprise may be disproportionately punished.”

Jessica Amir, a market strategist at Saxo Capital Markets Ltd., will be focused on the impact of recent macro and geopolitical events on forward guidance.

“There are new issues that have been brought to light that will be closely watched,” she said, citing rising tension over Ukraine, inflation worries, the coronavirus and the likelihood of faster monetary tightening in Australia and around the world.

The nation's stocks slipped into a correction on Jan. 27 as global markets swooned after the Federal Reserve opened the door to accelerated interest-rate hikes. Australia also saw a surge of Covid-19 cases last month as the omicron variant's spread coincided with the country's transition to living with the virus.

Dividends

Companies including miner South32 Ltd. and poultry processor Inghams Group Ltd. have seen their share prices pummeled already -- even before releasing earnings -- after detailing the impacts of worker and product shortages.

Only a small number of companies have published their official reports so far, with the pace to pick up next week and continue until late February. The season includes a mix of quarterly, semi-annual and full-year results.

Dividends from companies on the benchmark are expected to climb 9% from a year ago, according to data compiled by Bloomberg. Energy stocks, some of the pandemic's biggest losers, are forecast to lead payment increases on improved oil prices.

Both energy and materials firms could beat dividend expectations, according to Wilsons Advisory & Stockbroking Ltd. BHP's payout ratio could be more than 85%, topping its average ratio of 75% over the past eight reporting periods, while Rio Tinto may issue a final dividend equating to an 80% payout ratio, analysts led by John Lockton wrote in a note.

Investors in consumer discretionary companies may not fare so well after the hammering taken by retailers during lockdowns. While dividends are likely to be issued later this year, payouts could be delayed if Covid uncertainty stays high, Goldman Sachs Group Inc. analysts led by Darshana Nair Syama wrote in note last month.

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