From the editor

From ASX

The profit-reporting period can be daunting for investors, sharebroking analysts and the media, as hundreds of companies announce their full-year profit over several weeks.

Even more challenging can be deciphering different types of reported profits and knowing which figures to analyse. Then investors must decide if the profit meets or exceeds market expectations, which usually determines if the share price rises or falls in the short term.

The good news is the profit-reporting season provides valuable insight into how companies have performed and how their management sees the next 12 months. It also gives clues as to whether more companies are outperforming market expectations for growth, and forcing sharebroking analysts to upgrade earnings forecasts, which is an important precursor to an eventual sharemarket rally.

This month's ASX Investor Update has several stories to help readers navigate the recently concluded profit-reporting season for companies with a June 30 year-end.

Lincoln chief executive Elio D'Amato begins this newsletter with an analysis of profit trends, and names 10 companies that delivered during this reporting season. D'Amato says he has never seen a profit-reporting season where there was so much negativity in the lead-up.

His early analysis found companies that reported profits that beat consensus analyst expectations outranked those that disappointed by a factor or two. "Despite the doomsday predictions, it has ended up a normal and ordinary reporting season after all," he says.

Roger Montgomery, founder of the Montgomery Fund and the share valuation service Skaffold, explains how he assesses company profit reports. For a leading long-term value investor such as Montogmery, it is less about short-term price movements and more about the return that companies produce on each dollar of shareholder funds invested, and how it translates in valuations.

Andrew Doherty, Morningstar's director of equities research, also assesses the profit-reporting season and examines results from several ASX50 companies in more detail.

Elsewhere, Evans & Partners' head of derivatives, Mike Saba, considers the development of the ASX Interest Rate Securities market and the growing number of opportunities for yield-focused investors seeking fixed or floating rates instruments that offer higher returns.

BetaShares' head of portfolio construction, Tony Rumble, looks at new research commissioned by ASX that shows the benefits of "covered call" options writing, to earn an option premium and potentially improve returns. This popular options strategy can be effective for income investors and options enthusiasts alike, but is not without risk.

We hope you enjoy this issue of ASX Investor Update. As always, do not act on the ideas or themes in the articles without doing further research of your own or seeking advice from your sharebroker or financial adviser.

About the author

Tony Featherstone is consulting editor of ASX Investor Update. He is a former managing editor of BRW and Shares magazines.

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