Australian shares: Simpler, predictable earnings this year’s equity market story

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Fewer shocks and more bankable businesses, that’s what is in fashion with investors this year. The list of companies trying to dish it up is growing.

One of the year’s big themes in Australian equity capital markets is the quest for earnings simplicity.

The goal is simplicity; simplicity in how capital is directed inside a business and how that capital is derived. There are rich rewards for those that get it right.Insurance Australia Group CEO Nick Hawkins gets it better than most. As the former CFO, he has a good grasp of markets, earnings and shareholders, and how to put those three together to create value. That’s not to say he or IAG has always got it right, but he knows the game.

IAG shares popped close to 10 per cent on Friday. It was welcome news, and even more welcome was that IAG shares were trading higher again on Monday. That it was delivered on the final trading day of the financial year was a bonus. Morgan Stanley analysts said it would lower IAG’s cost of capital given improved earnings certainty for the coming five years – even though it would chip 2 per cent off the group’s FY25 earnings-per-share forecasts. Citi analysts said investors would likely be willing to pay more for IAG’s less volatile earnings.

 

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