The Livewire survival guide to reporting season 2023

Many investors will be watching the coming reporting season with a side of nerves. It’s shaping up to be the period where we finally see the effects of persistent inflation on company earnings, and the market is tipping significant downgrades.

While not all ASX-listed companies follow a "1 July to 30 June" financial year, with full-year results announced in August, many do. And February’s relatively average reporting season was a red flag for many commentators.

“The big takeaway from that season, I believe, was that no less than 49% of reporting companies required a pick-up in the second half to meet either their own guidance or market forecasts in August,” says Rudi Filapek-Vandyck of FNArena.

In the lead-up to August, confession season – when companies revise their targets or expectations downwards ahead of reporting – has also been in full swing. Some examples include Lendlease (ASX: LLC), IGO (ASX: IGO), Ansell (ASX: ANN), CSL (ASX: CSL) and Megaport (ASX: MP1).

Major brokers are wary of what’s coming.

For example, Morgan Stanley is tipping flat dividend payouts year-on-year for the "big 4" banks, off the back of lower margins. Macquarie is also underweight the big banks, favouring general insurers and telecommunications.

By the same token, it’s an interesting time on the macro front. The latest inflation print suggests that we’re seeing a turnaround finally and there are some signs we’re close to the end of the rate hiking cycle. There’s still much to be positive about in various sectors, too.

Reporting season can be a time of opportunity, but it also holds some risks for the unprepared. In light of that, here’s our survival guide for the August 2023 reporting season.

Note: This article is general information only – it doesn’t consider your personal financial situation, so shouldn’t be considered advice. As always, do your own research and speak to a professional financial adviser before making any portfolio changes or other investment decisions.

1. Stick to your objectives

As you head into reporting season, it’s worth revisiting your investment goals and objectives and why you selected the investments you have. As company reports land and some surprise on the downside, others on the upside, this can be invaluable in helping you hold your nerve if you need to, or consider additions to your portfolio if relevant.

As part of this, you need to ensure you clearly understand your investment horizon. If company earnings have fallen off the back of a short-term event, but evidence suggests that it will comfortably recover in the long run and you have a longer investment horizon, you would be better off maintaining your position. 

On the flip side, a short-term boost in a company that has poorer long-term prospects is hardly going to help your portfolio.

2. Create a wishlist, do your research and look beyond the noise

Sometimes reporting season can be an opportunity. Research and create a wishlist of any companies you want to buy ahead of the reporting season, along with a watchlist of those you already hold. Follow the patterns for share prices and understand the fundamentals. That way, if there is a buying opportunity, you can feel comfortable taking it.

Sometimes in the early stages following a company report, the market can overreact or underreact to the news. You’ll be better able to interpret this if you’ve done your research. You’ll also better understand the results and what it means for the company.

“Understand the key drivers of the business – most companies have a few key points of earnings leverage. By knowing where to look, you can quickly assess changes that will affect outlook,” says Richard Ivers, Prime Value.

3. Know the dates

There are a few layers to this.

Firstly, you want to be aware of the dates that companies are reporting so it doesn’t catch you by surprise if your portfolio moves a bit that day.

Secondly, if the company has announced any dividends, it’s helpful to be aware of the following:

• The ex-dividend date: you must be a shareholder before this date to be eligible for dividend payments. Typically one business day beforehand.
• The record date: this is one day after the ex-dividend date and is the cut-off date for a dividend.
• The payment date: this is when the dividend will actually be paid to you.

If you intend to sell a company but still want the dividend, you’ll need to wait for the record date before you sell. If you want to buy a company for its dividend, you’ll need to have purchased before the ex-dividend date.

4. Buy the bounce (if the numbers stack up from your research)

Companies can move sharply upwards or downwards for several days after surprise results. You don’t have to buy or sell immediately, it is ok to take some time to assess what you want to do.

“There is money to be made buying stocks after the results even if they have popped. You may miss the first day and the best day, but you’ll catch the next few days of trend, and your risk is much lower than punting ahead of the results,” says Marcus Padley from MarcusToday.

5. Sell if you need to

While generally speaking, investors are encouraged to hold the course and tune out the noise, there are times when it is best to just sell, even if that means crystallising a loss. If a company no longer meets your objectives for investing, and your research suggests its outlook is poor, then sometimes it’s best to cut your losses and reinvest in a different quality company.

6. Understand the basics of reading the financial statements

While analysts will look at a vast range of data, which might vary based on the industry a company operates in, generally speaking, an investor wants to know two things about a company:
I) Will it make money?
II) Is it sustainable?
It's key to understand how profitable a company is (or is likely to be) and its expenses compared to that.

Profitability – some of the ways fund managers often assess this include net income, net earnings, NPAT (net profit after tax), operating revenue, and free cash flow (this is what is left after a company pays its day-to-day expenses).

Costs to operate – operating expenses, other liabilities and inventory levels compared with the revenue a company is generating can be valuable to monitor.

If you want to take a simpler approach, some investors just focus on EPS (earnings per share) and DPS (dividends per share). It's worth noting, if you really want to understand a company's performance and outlook, that these numbers won't give you the full picture. However, EPS is a measure of the company’s overall earnings divided by the number of shares on issue. Dividends per share reflect how much a company has paid in dividends per share over a set period of time.

Happy hunting for those on the lookout for opportunities - and for everyone else, best of luck with reporting season and your portfolio.