The ASX reporting season begins, what to expect?

ASX reporting season has kicked off. In this week’s Investor Spotlight, we look at the key themes for this reporting period and preview three stocks to watch.

Profits in focus as growth slows down

The ASX 200 got off to a blistering start in 2023, rallying by as much as seven percent before pulling back as the reporting season got underway. Easing uncertainty regarding interest rates underpinned a rally in the likes of technology and gold stocks.

China’s re-opening sparked a rally in energy and materials stocks. While hopes for a soft landing for the Australian economy drove the banks and consumer stocks higher.

According to Macquarie’s research arm, the ASX is poised to deliver profit growth of 3.3%, with potential for upside surprises. However, the key risk is to the outlook, where it is likely the lagging effects of interest rate rises will impact company bottom lines.

What to watch this week

More the one-third of the ASX 200 is reporting this week, with some of the country’s blue-chip companies delivering results.

Here is a list of ASX-listed companies reporting this week, according to Maqro Capital.

Three stocks to watch

• JB Hi-Fi

Australian consumer giant and market darling JB Hi-Fi delivered its half-year results, disappointing investors despite posting solid growth. Sales increased by 8.6% for the period, while net profit after tax climbed 14.6% and the dividend was jacked-up to $1.97 per share.

JB Hi-Fi results chart

The guidance from Group CEO Terry Smart cast a shadow over the results, however, who warned that sales growth is beginning to “moderate”. The business also flagged the beginning of a potential discounting cycle, which could tighten margins and weigh on future profitability.

JB Hi-Fi’s shares slumped more than five percent on the day of the result, as the stock’s momentum shifted to the downside. Support (now resistance) at $45 broke, while the price is now reverting to trendline support and a confluence of support levels.

If they break, it may open a run toward roughly $43 per share.

JB Hi-Fi daily chart

• Commonwealth Bank of Australia

Commonwealth Bank of Australia reports its half-year results on Wednesday the 15th of February. Data compiled by Reuters suggests that analysts expect a 20.86% drop in interim profits of $5.1 billion for the half, but a 20% increase in dividends to $2.11 per share.

Despite profits moderating from record highs, Commonwealth Bank stock trades near record highs. It is trading at historically rich multiples, which appear to reflect a very positive outlook for the Australian economy (and the bank’s dividend) as net interest margins rise with interest rates.

Analysts are wary of the stock, however, with the consensus recommendation of a “sell”.

The technicals for Commonwealth Bank Shares point to an unfolding reversal for the stock. The RSI is turning lower, with price finding support at $109 per share. A break of that level may open a drop toward $107.26, while resistance can be found at the stock’s record high of $111.30.

CBA daily chart

• Fortescue Metals Group

Trader favourite Fortescue Metals Group reports on Wednesday morning, with analysts expecting the company to report a 14% drop in earnings. Naturally, the fall has been driven by weaker revenues, reflecting the falling iron ore price in the last half.

Despite what has been softer fundamentals for FMG, along with expectations of weaker profits going forward, the stock has become a trade on China’s re-opening. This optimism isn’t reflected in analyst expectations, with the broker community recommending a “sell”, and suggesting that the stock trades at a 20% premium to fair value.

The technicals suggest that the stock could soon fall into line with this bearishness. The daily RSI is beginning to trend lower and the price is below the 5, 10, and 20-day moving averages.

Key support appears to be around $21.50 per share, with a break there opening a possible re-test of $20. Resistance meanwhile looks to be around $23.00.

FMG daily chart