This reporting season in February 2021 could be really interesting. There are some things that I’m looking for in this ASX reporting season:
Rising margins
One of the main reasons why investors should like listed businesses is that they’re among the strongest and biggest companies in the country (or even the world). There are many advantages of being the strongest, one of which is economies of scale. That means that as those businesses grow revenue it should mean that a higher percentage of that new revenue falls to the bottom line.
There are some great businesses that continue to increase their gross margins such as Xero Limited (ASX: XRO) and Pushpay Holdings Ltd (ASX: PPH). I’m hoping to see continuing gross margin growth or net profit margin growth from businesses like Magellan Financial Group Ltd (ASX: MFG), Wesfarmers Ltd (ASX: WES) and JB Hi-Fi Limited (ASX: JBH).
Dividend increases
COVID-19 has been a really difficult time. I think that dividends are a great insight into the confidence and outlook of a company’s leadership. If they implement healthy dividend increases then it could be a sign that the leadership feel the worst is over and the company doesn’t need to hold on to excess capital.
I’ve got my eyes on the dividend announcements from businesses like Commonwealth Bank of Australia (ASX: CBA), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and BHP Group Ltd (ASX: BHP).
Acquisitions
Recessions can be tough for almost all businesses initially, but it can be a time for the best in the industry to increase their market share, particularly if they can acquire distressed competitors. With difficult operation conditions in some areas, and record low interest rates, it could be a time to go hunting. I’ll be interested to see if some businesses to go acquisition shopping. Businesses like Bapcor Ltd (ASX: BAP), City Chic Collective Ltd (ASX: CCX) and Altium Limited (ASX: ALU) could be ones to watch for potential acquisitions.
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