Profit upgrades are starting to flow and it's not just a pandemic blip, analysts say

Recent profit upgrades have a lot to thank pandemic policymaking for, but that’s not the whole story.

Anyone who has tried to find a tradie recently won’t be surprised that some companies are cashing in on strong demand.

A slew of companies which are benefiting from a pandemic tailwind have released profit upgrades recently, with a predicted surge in household consumption indicating the good times may be far from over.

Australian-listed companies which are aligned to strong spending on home renovations, maintenance and new builds, including BlueScope Steel, Reliance Worldwide and HiPages have all put out strong trading forecasts this week with HiPages stock trading almost 12 per cent higher on Wednesday.

Personal protective equipment manufacturer Ansell, property group Mirvac, metals recycler Sims and insurance broking group Steadfast all also upgraded their outlooks in recent days.

HiPages, which listed in November, delivered solid updates to its prospectus forecasts, with year-to-date recurring revenue of $38.8m up 25 per cent and job volumes up 17 per cent.

HiPages links customers with tradespeople, and Goldman Sachs analysts Michael Peet and Sophie Carran reiterated their buy recommendation on the stock because of its leverage to the steady repairs and maintenance spend in the Australian housing sector.

“The recent house price boom and structural shift to working from home, combined with excess savings in the economy is driving additional consumer demand for tradies,’’ the analysts said in a note to clients.

“We believe HiPages is well-placed to capture an increasing share of this spend.’’

The big freeze in the US has benefited plumbing supplies company Reliance Worldwide.

Plumbing products company Reliance Worldwide had its price targets upgraded by a number of analysts this week after announcing on Tuesday that quarterly sales were up 14 per cent to $359.4m.

The Reliance result was boosted by the cold snap in the US in February, with the company estimating “that the impact of the freeze event accounted for over half of the sales increase in the Americas for the quarter’’.

While the company’s quarterly result for the Americas was up 39 per cent, it also delivered strong growth of 11 per cent across the Asia Pacific and 13 per cent across the UK and Europe, driven by new builds and renovations in Australia and “increased repair and remodel activity’’ in the UK.

BlueScope is also well-aligned to the home improvement and building surge in Australia and overseas, tipping second half earnings will come in at $1bn-$1.08bn, up from a previous forecast of $750m-$830m.

Bluescope Steel is banking the benefits of strong demand and supply constraints globally.

Wilson Asset Management portfolio manager John Ayoub said while each of the stocks which put out upgrades this week had their own story to tell, ongoing strength in the economy and pent up demand domestically and globally laid the groundwork for solid equities performance going forward.

He does expect a swing towards sectors such as tourism and a muting in areas such as home improvements, as the pent up consumer demand looks to new outlets.

“I think the broad statement you can make is that we’re starting to see sweeping improvements in economies globally,’’ Mr Ayoub said.

“I think a lot of what we bought last year was home improvement and you don’t do that every year, so once we spend that ... I think as we move forward the spend is going to move towards tourism and there is certainly a lot of pent up demand.

“There is a lot of money to be unleashed, growth should remain strong, we are concerned somewhat around inflation.”

Mr Ayoub said given how weak the economy was this time last year, companies should be delivering double digit improvements on those periods, and “that should continue through to the end of the year’’.

Mr Ayoub said the upgrades coming from BlueScope and last week from metal recycler Sims reflected ongoing supply chain issues globally.

“With supply chain pressure these companies are certainly going to profit and it’s only going to continue as demand continues to grow robustly for these companies,’’ he said.

“You look at some of the indicators in the US, and companies like James Hardie, building activity is certainly ticking up in a strong way.”

Property group Mirvac on Wednesday lifted its earnings guidance with chief executive Susan Lloyd-Hurwitz saying the business had performed well over the March quarter with residential settlements and sales ahead of expectations.

Mirvac managing director Susan Lloyd-Hurwitz.

“As a forward indicator property is always a good proxy, and apartment settlements certainly gives us some confidence around the economy going forward for the next 12 months at least,’’ Mr Ayoub said.

On an international basis, Moody’s is forecasting that household consumption in advanced economies will “surge’’ in coming quarters, with Australia topping the list of countries with “excess savings”.

“We expect staggered recoveries in advanced economies’ household consumption as pent up demand, especially for services, is unleashed,’’ the credit agency said

“Savings accumulated over the past year have buttressed household balance sheets, which will likely support robust household consumption over several quarters.

“The timing and speed of recovery will vary by country depending on the pace of their vaccine rollout and loosening of pandemic-related restrictions.’’

Moody’s has estimated the quantum of “accumulated excess savings’’ across the US, Germany, France, the UK, Japan and Australia at $US2.5 trillion at the end of 2020.

“We expect healthier household balance sheets, wealth accumulation and savings buffers to support robust consumption over the next several quarters,’’ Moody’s said.

Coles chief executive Steve Cain, speaking on Wednesday as the company reported a return to more normal trading after the pandemic-driven surges in 2020, said the economy “looks like it is in a good space’’.

“But as I have said before, for long term future growth we need as many people vaccinated as possible so they can open the borders and people can come and go, whether that is tourists, students or people who are adding to the future growth of Australia through business,’’ he said.

Ansell, which was a direct beneficiary of the global surge in demand for personal protective equipment, also yesterday upgraded its guidance, saying full year earnings could be as much as 18 per cent higher.

The company said a behavioural shift around hygiene was expected to underpin demand even after COVID-19 subsided.

Mr Ayoub said while Ansell had been a Covid beneficiary, he believed the task would become harder for them from here on.

“Things will certainly get harder for them as their competitors globally increase capacity, there will be oversupply in the system, a lot of the supply chain issues will be sorted out,’’ he said.