The long term outlook for the sharemarket looks bright. After assessing 141 companies in the S&P/ASX 200 that reported full year earnings to June 30, 2014, CommSec found that aggregate revenue grew by 4.1 per cent to $584.9 billion. Expenses grew by 3.2 per cent to $477.9 billion and net profit lifted 31.4 per cent to $51.5 billion. CommSec found that average earnings per share rose by 11.6 per cent and dividends were up by 11.2 per cent. It says almost 69 per cent of companies reporting full year earnings improved their profit results. Corporate Australia is in good shape.

Janine Cox, of Wealth Within, says the sharemarket is in the early stages of a long term bull run. She says after the GFC, the sharemarket experienced uncertainty until 2012 followed by a significant rise in the value of Australian equities. Today’s market is in a phase of improved earnings, but she expects a correction of between 8 per cent and 20 per cent in 2015. Then she predicts the bull market should resume in earnest, surpassing the all time high of about 6800 points reached in 2007.

Today, analysts reveal five stocks that surprised to the upside during reporting season and examine their outlook.

Harvey Norman (HVN)

Chart: Share price over the year versus ASX200 (XJO)

The retail giant simply delivered the goods. “The bottom line result was up by around 49 per cent at $211.7 million to June 30, an impressive result by any standard, and particularly given the intensity of competition in the industry,” Cox says.  

“This recent result is the call that every analyst would have liked to hang their hat on, but none called it – not even the big institutions saw this result coming. It was undeniably out of the park.  

“Gerry Harvey (executive chairman) also helped to bolster the share price by dangling a big carrot in front of shareholders. In the current climate, special dividends, increases in the dividend and share buybacks are in strong demand from big institutions, and Gerry Harvey’s talk of a possible buyback or special dividend in the near term left the big institutions salivating for more.”

In relation to the company’s outlook, Cox says headwinds include fierce competition from other bricks and mortar retailers and the online world.  “However, I believe the recent share price marks an important turning point,” she says. “The technical analysis has for some time indicated a major hurdle existed at around $3.30, which the stock is now clear of, and therefore I believe HVN will continue to improve. That said, it’s not smooth sailing just yet, as the stock must hold above $3.60 to continue on to my short-term target of between $4 and $4.20.” The shares closed at $3.72 on September 10.

Veda Group (VED)

Chart: Share price over the year versus ASX200 (XJO)

This data analytics business listed on the ASX last year, but Michael Gable, managing director of Fairmont Equities, says its recent result exceeded revenue, EBITDA and net profit forecasts provided in the prospectus. He says all business units recorded growth, particularly in the core credit divisions, and cash flows remain strong. Operating EBITDA margins are increasing, with operating costs tracking well below revenue growth. “The company strategy of diversifying the revenue stream beyond credit origination continues to drive growth,” Gable says. “The company reported that customers are starting to provide more data, which is another key part of the strategy.”

The company reported revenue of $302 million and a statutory net profit after tax of $22.7 million.

Gable says VED forecasts continuing revenue growth in all business lines, which is expected to deliver at least low double-digit EBITDA growth in fiscal year 2015 and broadly commensurate growth in net profit after tax.

Looking back at the charts again, Gable says VED has broken a recent downtrend and expects it to trend up as it strives for a new high.

Slater & Gordon (SGH)

Chart: Share price over the year versus ASX200 (XJO)

James Samson, of Lincoln Indicators, says a strong Australian performance and UK earnings exceeding expectations drove the legal firm’s strong full year 2014 results. He says SGH reported a revenue increase of 40.4 per cent to $418.5 million and net profit rose by 47.2 per cent to $61.1 million. “Growth was driven by a 4 per cent lift in Australian revenue to $236.487 million,” Samson says. “UK revenue grew by 158.7 per cent to $182.446 million.”

Samson says management guidance suggests revenue of at least $500 million in fiscal year 2015 at a 23 per cent to 24 per cent EBITDA margin ahead of broader market expectations again. The company also announced the acquisitions of Nowicki Carbone and Schultz Toomey O’Brien in conjunction with this result, which will provide additional earnings in the years ahead. “We believe SGH is well placed on the back of a strong report and outlook statement,” he says.   

Infomedia (IFM)

Chart: Share price over the year versus ASX200 (XJO)

Samson says IFM provides after sales service software to the global automotive industry and has a global market share of about 25 per cent. IFM recently invested in product development and innovation, culminating in new software releases. IFM reported a revenue increase of 17 per cent to $57.143 million, and a net profit rise of 22 per cent to $12.279 million.

Samson says revenue tends to be predictable given its recurring from an established subscription base. He says management guidance suggests net profit in excess of $14.5 million for fiscal year 2015, representing another year of solid growth. “We believe IFM is well placed to benefit from product investment in recent years,” Samson says. “Any depreciation in the Australian dollar should also help given that less 30 per cent of revenue is generated from Australian operations. IFM was a clear standout this reporting season, beating expectations and its outlook is bright.”

CSL Limited (CSL)

Chart: Share price over the year versus ASX200 (XJO)

Matthew Litchfield, of PhillipCapital, says the blood products group reported better than expected fiscal 2014 revenues of $US5.5 billion and net profit after tax of $1.3 billion.

Litchfield says the market wasn’t expecting CSL Behring sales of plasma derived therapies to grow by 10 per cent. “Also, gross margins increased by 2.9 per cent,” he says. “The 2.9 per cent increase continues an expansion trend on already high margin products.”

He says earnings growth guidance of 15 per cent for fiscal year 2015 paints a bright outlook. “CSL enjoys strong market positions globally and the positive guidance also helped water down concerns of increasing competition,” Litchfield says.

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