24/01    Investor jitters raise the profit bar for Australian companies

AUSTRALIA'S listed companies will have to comprehensively beat profit forecasts in the coming reporting season if they are to win over nervous investors, analysts say.

Share investors are particularly sensitive to uncertain global economic conditions and may ignore details of results announcements, according to Commonwealth Bank analysts. In a note to investors yesterday ahead of the mid-financial year reporting season next month, a team of CBA analysts said: "While uncertainty of earnings forecasts is not ringing alarm bells, the current market dynamics are."

"Under normal market conditions, investors positively react to the earnings announcements that beat expectations. Current market dynamics, however, represent a risk to that normal behaviour," the note said. "The risk is that investors will overlook details of the result announcement in favour of general negative sentiment."

The CBA team, led by Nizar Torlakovic, said that in the absence of significant downbeat developments in the global economy, economists did not expect to see many negative surprises. "Stocks already have been beaten down over the last six months, and earnings expectations downgrades have been sizeable," the note said. "We think the majority of potential negative surprises are already priced in."

Bank research indicated there was no "heightened risk" of companies making significant changes to forecasts. "Uncertainty spread between small and large stocks is also at levels comparable with historical ones," the note said. But it warned resources companies could prove to be the exception. "Resources is the only sector that shows increased level of uncertainty relative to its history. We think small resource stocks are the most exposed to risk of earnings revisions."

Source:news.com.au