The majority of ASX companies with 30 June balance dates have now released their financial results. We reflect on some of the noticeable trends and themes.

Firstly, we’re seeing an improvement in conditions for the resources sector. Cost cutting and more stable commodity prices have led to cash flow improvement, profit upgrades and positive share price moves. Resources and their service providers have outperformed the market month-to-date, whereas Telcos and Insurers have lagged.

Secondly, housing-exposed companies have fared better than expected. Settlement risk was a key concern heading into this reporting season but residential developers, Mirvac and Lend Lease, are still seeing plenty of activity and seeing default rates remain below 1%. Retailers with housing leverage (JB Hi-Fi, Nick Scali) all delivered strong results but more broadly, the consumer picture is mixed.

Thirdly, the financial sector, and the Banks in particular, are seeing slowing revenue growth, tighter margins and early signs of deterioration in credit quality. The sector outlook remains subdued with forward earnings momentum looks to be slowing and regulatory capital intensity set to rise. Within Insurance there is a clear sign of margin squeeze as seen in the results of Suncorp and IAG.

Fourthly, it was a year of two halves. For many companies, there was some significant deceleration in earnings growth in the second half of the financial year. For example, Seek saw earnings before interest, tax, depreciation and amortisation rise 15% in the first six months then decline 4% in the last six months. This gives little confidence of a strong start for the financial year 2017.

Fifthly, tourism is still alive and well. Inbound tourist numbers remain strong and local Australians continue to holiday domestically as tourists take advantage of the low Australian Dollar. This strength can be seen across Theme Park and resort operators as well as the national airline and ferry operators.

Lastly, we’re seeing relative economic strength in the Eastern seaboard compared to the West. Regionalisation was clear in many results. We are not yet being told that weakness in Western Australia has bottomed out yet either via real estate or bank lending trends. We therefore continue to favour companies with East Coast exposure.

Despite having a few more trading days left in August, the top 100 (ASX 100) companies in aggregate have had earnings cut by the market by approximately 1% for the next 12 months. While this isn’t a large change, it does suggest that expected growth for the 2017 financial year will be subdued.

Victoria Harris

Senior Analyst

Disclosure of interest: Milford Funds Ltd holds shares in Mirvac, Lend Lease and Suncorp on behalf of clients. Milford Funds Ltd also holds fixed interest securities in IAG on behalf of clients.

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.