\n\tBy Greg Peel<\/p>\n
\n\tStock analysts were under no illusion this was going to be a bumper six-monthly corporate earnings result season, but BA-Merrill Lynch notes large caps did not even manage to clear the low hurdles set. Small caps provided much better performances, particularly in mining services and consumer discretionary. In the case of the former, one might suggest, analysts were caught out by the strength of margin gains despite having a positive view, while in the latter case, a pervading negative view was found not to be appropriate in all cases.<\/p>\n
\n\tThe best results for the season, Merrills<\/span> suggests, were posted by Super Retail ((SUL<\/span>)), Webjet<\/span> ((WEB)) and Automotive Holdings ((AHE<\/span>)) in the consumer space, Beach Energy ((BPT<\/span>)), Horizon Oil ((HZN<\/span>)) and ROC Oil ((ROC)) in energy, and Cochlear ((COH<\/span>)) and ResMed<\/span> ((RMD<\/span>)) in healthcare.<\/p>\n \n\tThe worst results came from telco<\/span> Telstra ((TLS)), utility Infigen<\/span> ((IFN<\/span>)), and Atlas Iron ((AGO)), PanAust<\/span> ((PNA<\/span>)), BlueScope<\/span> ((BSL<\/span>)) and Mt Gibson Iron ((MGX<\/span>)) in materials.<\/p>\n \n\tCost management was very much in focus with margin pressure a prominent theme, Merrills<\/span> notes. The analysts suggest forecasts remain too optimistic, particularly outside of materials and financials, and that consensus margin forecasts for Cochlear, Myer ((MYR<\/span>)), Woolworths ((WOW)) and Metcash<\/span> ((MTS<\/span>)) are too high.<\/p>\n \n\tCapital management news was also mostly missing, much to the disappointment of investors, with Westfield ((WDC<\/span>)) and Telecom NZ ((TEL)) the only companies to announce new buybacks<\/span>. Companies falling well short of dividend expectations included Goodman Fielder ((GFF<\/span>)), Atlas Iron and James Hardie<\/span> ((JHX<\/span>)).<\/p>\n \n\tThe current consensus forecast for ASX<\/span> 200 earnings growth for FY12<\/span> stands at 2% but Merrills<\/span> sees a downside risk if expectations of a stronger second half are not met. Sales pick-up expectations in the second half seem too high for OneSteel<\/span> ((OST<\/span>)), Brambles ((BXB<\/span>)), Mermaid Marine ((MRM<\/span>)) and Seek ((SEK<\/span>)), the analysts suggest. But at 14% growth, it is the current forecast for FY13<\/span> growth which offers the most downside risk, Merrills<\/span> believes. The analysts estimate the market PE to currently be around 12.5x, and fair value.<\/p>\n \n\tMerrills<\/span> has made some changes to its Small Caps Conviction List post season. Out go Flight Centre ((FLT<\/span>)) and Ausdrill<\/span> ((ASL<\/span>)) on now overblown valuation, and SAI<\/span> Global ((SAI<\/span>)) on a lacklustre<\/span> first half. In go Super Retail and Sedgman<\/span> ((SDM<\/span>)), while Wotif<\/span> ((WTF)) enters as an Underperform<\/span> conviction (all others are Buys).<\/p>\n \n\tRemaining in the list are McMillan Shakespeare ((MMS)), Bradken<\/span> ((BKN<\/span>)), Fletcher Building ((FBU<\/span>)), Saracen Minerals ((SAR)), Telecom NZ, and Sky City Entertainment ((SKC<\/span>)). Micro-cap convictions are represented by Technology One ((TNE<\/span>)) and Mastermyne<\/span> ((MYE<\/span>)).<\/p>\n \n\tMacquarie has similarly been re-addressing its high conviction call list with regard to all the stocks under coverage (~300), which it calls Marquee Ideas.<\/p>\n \n\tIn goes AGL<\/span> Energy ((AGK<\/span>)), which the analysts like on a low PE as well as seeing synergies offered by the proposed Loy<\/span> Yang A full acquisition, CSL<\/span> ((CSL<\/span>)) due to clear market share gains in plasma, CFS<\/span> Retail ((CFX<\/span>)) on a geographically high quality retail portfolio and solid yield, and Virgin Australia ((VAH<\/span>)) on expected continuing momentum.<\/p>\n \n\tOut go Woodside ((WPL<\/span>)), Tap Oil ((TAP)), Amcor<\/span> ((AMC)), GPT<\/span> Group ((GPT<\/span>)) and Telecom NZ.<\/p>\n \n\tLooking at emerging leaders, Macquarie has identified five of its key picks post reporting season. They are Breville<\/span> Group ((BRG<\/span>)) based on the medium term potential of international sales growth, Clough<\/span> ((CLO<\/span>)) on the strong oil and gas services outlook, RCR<\/span> Tomlinson ((RCR<\/span>)) on IT growth potential from the key resources, petroleum and power markets, SAI<\/span> Global ((SAI<\/span>)) on a contrary basis following a soft result and a suggestion organic growth potential is not factored in, and Skilled Group ((SKE<\/span>)) on cost reductions tracking ahead of schedule.<\/p>\n \n\tUBS has also reassessed its Model Portfolio post season. <\/p>\n \n\tThe strategists have decided to trim the mining sector weightings from Overweight to Neutral. Although fears of a hard landing in China have now largely eased, a certain soggy outlook for steel production and thus iron ore demand remains. Moreover, global equities altogether look a bit overbought, UBS suggests (writing before last night's Wall Street correction).<\/p>\n \n\tUBS expects defensive stocks to continue to underperform<\/span>, although subdued global growth should lead investors to consider higher quality names despite reduced risk aversion in 2012.<\/p>\n \n\tUBS has been riding the resource services wave although accelerated performance has prompted the strategists to reassess specific stock names, particularly the “pure-plays”. As many of these names have taken off lately, larger caps with non-exclusive services and capex<\/span> components have been left behind and should now be worth a look.<\/p>\n \n\tAs far as the UBS Model Portfolio is concerned, in goes Crown ((CWN<\/span>)), Leighton Holdings ((LEI)), Nufarm<\/span> ((NUF<\/span>)) and ResMed<\/span>. Out goes AMP ((AMP)), Bradken<\/span>, JB<\/span> Hi-Fi<\/span> ((JBH<\/span>)), Orica<\/span> ((ORI<\/span>)) and Sydney Airport ((SYD<\/span>)).<\/p>\n \n\tDeutsche Bank is not necessarily in agreement with UBS when it comes to those pure play resource service names. The analysts continue to see upside for certain stocks as conditions improve in the next 12-24 months. Deutsche prefers Ausenco<\/span> ((AAX<\/span>)), Ausdrill<\/span>, Bradken<\/span> and NRW<\/span> Holdings ((NWH<\/span>)).<\/p>\n \n\tDeutsche's top cyclical picks are Ardent Leisure ((AAD<\/span>)), Adelaide Brighton ((ABC)), Flight Centre, GWA<\/span> Group ((GWA<\/span>)), Prime Television ((PRT<\/span>)), Skilled Group and Transpacific Industries ((TPI<\/span>)). The analysts like IOOF<\/span> Holdings ((IFL<\/span>)) for financial market leverage and SAI<\/span> Global as a defensive.<\/p>\n \n\tCompanies for which Deutsche has a longer term Buy rating but foresee near term headwinds<\/span> are Programmed Maintenance ((PRG<\/span>)) and Premier Investments ((PMV<\/span>)). Carsales.com ((CRZ<\/span>)) is looking interesting but is not quite a Buy at this point, while Deutsche is cautious on Iress<\/span> ((IRE)), Navitas<\/span> ((NVT<\/span>)), Salmat<\/span> ((SLM<\/span>)) and Wotif<\/span>.
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