Analysts say shareholders in Australian listed companies could suffer a 28 per cent cut in dividends from a likely 17 per cent slump in earnings for 2009.
But 2010 could deliver better returns than the market has priced in, peppered with a raft of takeovers as stronger companies are pressured into working lazy balance sheets harder, EL & C Baillieu’s research director Ivor Ries said.
Two weeks out from Australia’s company reporting season, the consensus view is that earnings will be between 16 per cent and 18 per cent lower, he told ABC Television on Sunday.
“But they’re expecting a more severe cut in dividends – they’re expecting dividends to be down 26 to 28 per cent,” he said.
Some analysts still take a bearish position, expecting earnings to plunge up to 26 per cent from the previous corresponding period, but Mr Ries thinks this level of negative sentiment is overdone.
“The financial crisis has gone. There is no financial crisis. It’s gone. It’s finished,” he said.
Few, if any, company surprises are expected as a deluge of earnings reports hits the local bourse over the next six weeks, with much greater communication between companies, analysts and major investors having taken place over the last six months.
And outlook statements of any substance will be rare, Mr Ries said.
Platypus Asset Management’s chief investment officer Donald Williams agrees and says the earnings outlook is grim.
“We’re not expecting positive outlook comments. In fact we’re hoping there will be few outlook comments,” he told AAP.
“The earnings outlook is still pretty grim for the period until the end of the year. You can hardly find an industrial company in Australia that’s upbeat about the next six months, so everyone is still cautious.”
Platypus thinks the local market will touch 5,000 points in the next 12 months if the economic data continues to improve but the rate of return will decline materially.
Going forward, while the market has priced in anaemic growth levels for 2010, Mr Ries says it could be much better than expected given recent positive data on China and Singapore’s gross domestic product (GDP), and evidence that the US economy is not “falling off a cliff”.
Mr Williams said accurate predictions of the global economic recovery have eluded all analysts, including Platypus, and economic data for Australia and China over the last six months has exceeded expectations.
“No one predicted that China would import more iron ore from Australia in the six months to June than it did a year ago,” he said.
“No one predicted that retail sales in Australia, even with the (government) stimulus, would get to a seven per cent annual growth rate.”
The equivalent of 10 per cent of Australia’s GDP was raised by Australian companies in the last 12 months via capital raisings that delivered $100 billion in fresh equity capital to balance sheets.
Mr Ries said companies will face pressure from investment banks to put that capital to use in coming months, unleashing a wave of takeover activity.
“We think it’s going to lead to a flood of takeovers. The money’s just laying around.”