ASX reporting season is ramping up this week with several high profile ASX 200 shares, including Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P) and A2 Milk Company Ltd (ASX: A2M) due to deliver results.
As we near halfway, here's what Citi thinks about the first-half FY21 earnings results so far.
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First-half results above expectations
Close to half of the ASX shares in the broker's coverage have reported results to date. On balance, Citi says that earnings across the market are "above analyst expectations".
The banking sector has surprised the market with a sizable fall in bad debts.
Citi notes that:
In some cases, this reporting season witnessed the beginning of the collective provision write-backs, much earlier than expected. The revenue growth has also positively surprised with lower funding cost and higher deposit margins, even though volume growth has remained benign.
Big 4 banks have been doing the heavy lifting for the ASX 200, most now trading within 10% of pre-COVID levels.
Resources cashed up
Citi's mining team had foreshadowed that resources companies would report strong dividend yields from strong cash flow generation and low debt levels this reporting season.
The broker has witnessed significant dividend announcements for BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO). In addition, there were significant positive surprises for metals and electronics recycling Sims Ltd (ASX: SGM), gold and copper producer OZ Minerals Limited (ASX: OZL) and ASX gold heavyweight Newcrest Mining Ltd (ASX: NCM).
Citi notes a number of companies outside of resources also reporting higher than expected dividends. Most notably, Suncorp Group Ltd (ASX: SUN), Tabcorp Holdings Limited (ASX: TAH), Domino's Pizza Enterprises Ltd (ASX: DMP) and Perpetual Limited (ASX: PPT).
Foolish takeaway
Citi's FY21 earnings are forecast to grow by 24.4%, with expectations holding up well so far. Much of its market revisions have come from upgrades to resource companies, driven by higher iron ore prices.
