In the sharemarket, they say 'price follows profit'.
And it's true, share prices sooner or later react favourably to a company improving its financial position.
Following the same logic, therefore, could 2015 prove to be the worst year for Australia's largest public companies since the GFC?
The S&P/ASX 50 (ASX: XFL) (Index: ^AXFL) houses the ASX's largest 50 companies. Names like National Australia Bank Ltd. (ASX: NAB) and SEEK Limited (ASX: SEK) are included in the index.
Worst year since the GFC
According to the ASX50 Financial Reporting Insights report by accounting giant, KPMG, in the 2015 financial year, Australia's top 50 companies reported a $13 billion, or 2%, fall in revenue and an 8% fall in profit year over year. This is the first time annual revenue fell since the report started in 2009. 2015's profit was also below that of 2011.
However, the good news is the 2015 results were weighed down by a few significant outliers, such as those from the energy and mining sector, rather than a general market malaise.
Indeed, 68% of ASX 50 companies reported an increase in annual revenue and if we excluded the five companies below, profit would've been $9 billion higher. The major losers in the ASX 50, identified by KPMG, were:
- BHP Billiton Limited (ASX: BHP) – Materials
- South32 Ltd (ASX: S32) – Materials
- Rio Tinto Limited (ASX: RIO) – Materials
- Caltex Australia Limited (ASX: CTX) – Energy & Utilities
- Origin Energy Ltd (ASX: ORG) – Energy & Utilities
Some of the best performers were from the real estate, insurance and transportation sectors. Consumers staples companies, such as Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW); and the 'Big Four' banks also posted modest profit growth.
Foolish takeaway
The slowdown in the resources sector has been a long time coming, and is unlikely to have reached its bottom. Investors should be aware that a prolonged slowdown in materials and energy will have ripple effects through the broader economy. Therefore, banks and other financials may also be two sectors to avoid, for now.
