A boutique fund manager has advised investors to pay close attention to the earnings and cost forecasts that will be released during the coming annual general meeting (AGM) season in order to more accurately identify the companies offering the best return opportunities.
Redpoint Investment Management chief executive Max Cappetta said analysing the information companies provide to shareholders has taken on a different dimension since COVID-19 had changed guidance attitudes over the past couple of years.
“COVID uncertainty has materially changed the information dynamic of company guidance in 2020, which initially saw most companies withdrawing all earnings guidance as we went headfirst into a global pandemic lockdown,” Cappetta said.
“AGM season in Q4 2020 was equally quiet with a skew to the positive, more upgrades than downgrades, because companies had been conservative and setting low or no forward expectations. Additionally, fiscal and monetary stimulus measures were dialled up and vaccine development was pointing to a more positive 2021.”
With regard to the upcoming AGM season, he recommends investors take note of the cost pressures companies highlight they are experiencing, as well as any lower-than-expected revenue growth expectations.
He identified Kogan, with an AGM to be held on 25 November, as an organisation whose revenue forecast individuals should examine.
“Can Kogan maintain its revenue growth, up 100 per cent since 2018, given an end to lockdowns and consumers looking to devote spending back to services? Can they maintain margins in the near term and are they seeing cost pressures which will squeeze their margins? These are critical questions [with] earnings having fallen over 50 per cent thus far in 2021,” he said.
He noted scrutiny over revenue guidance should be applied to Seek and Wisetech as well.
Further, he advised investors to be vigilant about the messaging from the major banks as they are entities that could benefit from changing cost pressures.
“Banks, as net interest margin earners, will welcome a rise in interest rates, while home loan owners will not. The main risk for the banks is unemployment and the impact of falling property prices. The current robust jobs market provides comfort that wage increases can offset some of the higher loan costs,” he said.
“There is plenty to focus on with AGMs over the coming weeks, particularly the guidance and cost pressures in determining who will enter 2022 with momentum and where the risks and opportunities lie for investors.”
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