As a precursor to monitoring how companies provide guidance for FY18, we have been tracking Trading Updates for FY17 that were released during July by ASX300 companies (only 4%). The take-outs are as follows:

• • 42% provided an upgrade from their previous guidance with the price performance experiencing a similar upward trend
  • 33% of the companies reported a downgrade in their earnings with half of these companies experiencing a slight fall in their stock price
  • 25% of reporting stocks reassured investors that they were on track with their guidance which pushed each company’s share price up
  • 7 out of 11 sectors had at least one company releasing an announcement (42% were coming from the Real Estate Sector)

Somewhat counter-intuitively, the research so far shows that the release of updated guidance has, on balance, a positive impact on share price regardless of the direction of update (upgrade or downgrade). Given that we can easily find companies outside of the ASX300 that have issued downgrades to guidance, with devastating consequences for the share price, we acknowledge that it would be somewhat rash to extrapolate these results from the small group captured in our survey universe.

Nevertheless with two thirds of companies in this small group reporting they are on track or will do better than guidance for FY17, these numbers are consistent with views expressed by other analysts in recent days:

• • Citi has reported that company earnings forecasts in the lead up to reporting season have only moderated slightly, despite a number of concerns emerging in recent months that have caused the ASX to trend lower. Downgrades were mostly limited to consumer stocks.
  • Deutsche Bank is expecting earnings growth to be robust at a little under 15%. They also anticipate ‘a soft tone around consumer-exposed companies’.
  • AMP Capital’s economist, Shane Oliver, is expecting profit growth for the market as a whole to be around 18%, driven by a 135% gain in resources profits with the rest of the market delivering around 5.5% growth, led by retailers, utilities, healthcare stocks and financials.

FIRST Advisers will be monitoring ASX300 companies reporting during August for their commentary on FY18, in particular whether they provide guidance, what form it takes and what that guidance is telling us about earnings trends for the current financial year. Our findings will be published in our September newsletter. If you are interested in how Australian companies are choosing to manage this increasingly contentious issue, subscribe to our monthly newsletter here.