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Reporting Season

Reporting Season: Earnings Growth is key

Nathan Lear
Partner/Private Client Adviser
17 Feb 2014

We are well into the February reporting season which will see most companies on the Australian Stock Exchange (ASX) report their earnings for the first half of the 2014 financial year.

An emerging theme for this reporting season is earnings growth. The market recovery over the past couple of years has seen the Price to Earnings (PE) ratio of many companies return to the historical average of around 14 times. The PE ratio is a common measure used by shareholders to help them determine the value of a company.

To continue to see an increase in share prices, companies will need to prove to shareholders that they’re continuing to grow earnings. Companies that do will generally see an increase in share price.

What is happening this reporting season?

We are only halfway into the reporting season, but so far so good. Here is a quick summary of some of the companies that Hewison clients have exposure to:

• Rio Tinto – Earnings up 10% and well ahead of expectations
• Telstra – A positive result with the company increasing its dividend for the first time since 2005
• Computershare – Increased profits by 9.6%
• CSL – Continues to deliver with a 3% increase in profits
• Commonwealth Bank – Announced an impressive 14% increase in profits, exceeding expectations
• ANZ Bank – A strong result with first quarter earnings up 13%
• Woolworths – Continues to deliver with sales for the December quarter up 5.9%

However, not all companies have fared so well.

Cochlear, a global leader in hearing implants, reported a profit decline of 53% with contributing factors being an impact on currencies, slower sales and increased competition.

As I stated in a previous blog last year, it is as important as ever to invest in quality companies that can generate sustainable earnings and pay reliable dividends to investors. Nothing has changed.

The companies listed above, with the exception of Cochlear, have reported an increase in earnings. This earnings growth is important for a company to grow its share price.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.