Mediobanca, Enel, UnipolSai dragged the Ftse Mib yesterday thanks to quarterly results higher than expected. Corporate Italy is almost halfway through the publication of the results for the first three months of the year and the balance sheet that is emerging indicates an overall discreet season, in line with the rest of Europe. On the other hand, the comparison with previous results is easy and, to get to this point, expectations have been reduced several times, thanks to the disappointments on the recovery. In the coming months, therefore, the macroeconomic data will primarily move the market.
EUROPE, SOLID SEASON. AND IT'S NOT JUST ABOUT THE EURO
Overall in Europe there are now more than 200 companies that have distributed the quarterly, 27% of the market. For Morgan Stanley the results are proving to be solid: if 32% released accounts below expectations, a higher percentage (35%) beat the estimates. We certainly cannot speak of a stellar season for now but the positive thing, analysts point out, is that “it does not seem to have been induced by the exchange rate, since a growing number of cyclical stocks have signaled a good domestic operating environment (yes deals for example with Accor, Renault, Electrolux and various luxury stocks)”. The trend now seems to be positive both in terms of consensus on profits and company guidance. “After 210 consecutive weeks of net downgrades, in the last four weeks Europe has seen more upgrades than downgrades for the first time since inception of 2011”, write the Morgan Stanley analysts in a report dated May 5 (European Equity Strategy: Earnings Season Monitor). At a sector level, seven out of ten experienced a positive balance in favor of upside earnings surprises. However, industrialists were disappointed, with companies that missed earnings per share expectations outnumbered those that beat estimates (38% versus 17%).
SURPRISE THE OILS
In Europe, Morgan Stanley points out, the big oil companies have positively surprised, with profits 30-50% higher than expected. “While the 50% drop in the price of oil over the last year worked against it, there were several factors that offset the effect,” Morgan Stanley analysts explain, indicating that downstream profits have increased substantially, the Production growth has accelerated, costs and capital expenditure have fallen significantly. In Italy, the accounts of Saipem were surprising which confirmed the estimates for 2015 and also of Eni which recorded profits, albeit decreasing, higher than expected. “The whole oil-related world – explains Aldo Martinale, Banca Intermobiliare's Head of Studies and Analysis to FIRSTonline – came out with weak results, with significant drops in profits but, since expectations were very low, the results surprised on the upside. And this is because these are often complex businesses where the estimates are not simple”. Clearly this is a "surprise" that has a relative value, the sector's prospects will in any case be conditioned by net losses from the drop in oil".
IF THE CHANGE HELPS TOO MUCH…
Compared to Europe, which is already at an advanced stage, the season of quarterly reports in Piazza Affari is a little behind. For example, there are still no banks, which represent a significant share of the market. But the first assessment seems positive. "For better or for worse, no different indications have arrived from the Italian corporate world than the European ones - says Martinale - For now it is a discreet campaign, the results have been quite good, probably also helped by the fact that expectations had already been revised downwards several times in recent years. We come from years of crisis and the comparison with previous results is easy”.
However, there are those who are not traveling in recovery but are now at historic records, such as Luxottica which has however beaten the already good expectations thanks also to the boost coming from the euro. In the first quarter the group recorded a net profit of 210 million (+34% compared to the same period in 2104) with revenues at an all-time record of 2,25 billion. The stock, before making room for profit-taking, was one step back from the all-time highs. And yet, the good results on the wave of the advantageous exchange rate have not always translated into the applause of the market. For some it was even a boomerang. This is the case of FCA which in the aftermath of the accounts was hit by sales, returning to the lows of February.
“There weren't surprisingly negative things and the quarter benefited a lot from the dollar – explains Martinale – But if you look at how much this aspect weighed, one wonders how the quarterly would have gone without this boost. And it wouldn't have been particularly brilliant." The market thus reacted negatively. “Overall – continues Martinale – it was a question of clear/obscure results. Among the clear points, however, the reappearance of profits, however modest, in the European area”.
Even more evident is the case of Stm which has sunk into the Stock Exchange due to disappointments on accounts and guidance. Yes, because the microchip manufacturer is one of the groups that benefit most from the exchange factor (therefore from the weakness of the euro) but, despite this good push, the results have not even met expectations. “The fault of a complicated market – points out Martinale – in which, faced with a weak demand, STM has not managed to bring home the desired profitability with the selling prices”.
MARKET, EYES ON MACRO DATA
THEY STOP DOWNWARD REVIEWS
On the other hand, the market in this phase does not expect sparks from the corporate world: the impact of a recovery on companies lags behind the signals from the economy. “It's not that we expected much because it's too early to see a recovery in the quarterly results that surprises us - explains Martinale - I don't think there could be any indications from this season of quarterly reports to move the market which for the next few months will move mainly on indications coming from the macroeconomic data and the quarterly will serve to confirm what the market is anticipating”.
As also noted by Morgan Stanley, in terms of estimates of corporate results there are signs that give hope for a trend reversal. “On the occasion of this season of results – Martingale also affirms – in Europe the revision of the estimates for the year which up to now has been negative has stalled somewhat. And it could leave room for a trend reversal. In other words, if in past years the quarterly reports were accompanied by an annual downward revision of the estimates because the recovery was always postponed, this trend has come to a halt in this quarter. Which is quite logical in relation to the expectations on economic growth”.
So our country is now playing everything on the macro performance of the coming months: with the initial rally, the stock market values already reflect expectations for a recovery in 2015. "The market is already discounting a significant portion of the improvement that will have to come – concludes Martinale – If growth expectations are met, there is room for further growth. It must be said that, Greece permitting, there are some more signs than in 2014. However, if the recovery were to abort these stock market levels are not sustainable”.
