SMI’s quarterly balance sheet: Almost half of the companies missed expectations

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Third quarter reporting season is coming to an end. 18 of the 20 companies in the Swiss Market Index reported business results, but Partners Group did not publish quarterly figures. Sonova will report on its operational activities on November 21.

Analysis by Cash.ch shows that 9 companies, including Alcon, ABB, Lonza, Nestlé, Richemont, Roche, Swisscom, Sika and Swiss Life, failed to meet the expectations of investors and analysts. On the other hand, 5 companies, namely Geberit, Kühne + Nagel, Logitech, Novartis and UBS, were convincing, while the results of 4 companies, Givaudan, Holcim, Swiss Re and Zurich Insurance, were in line with expectations.

When we look at the price development after the flood of numbers that started on October 18, we see how the wheat is separated from the chaff. The technology group Logitech is definitely on top as it is convincing in all areas and therefore leads the winners’ table.

But not all stocks of companies that underperform expectations are priced lower. Lonza stands out in midfield despite a disappointing result. The lack of continuation of the decline in the securities is due to the fact that the drug supplier presented an unpleasant view to investors a day before the start of the reporting season.

The price development in Lonza over the last three months shows a net loss of 24 percent. The positive price development in the last few days is therefore more of a technical correction.

At the low end, it came as a complete surprise to Swisscom that the company still expected the euro-franc exchange rate to be one-to-one. Richemont, which was at the top of the stock market in the first half of the year, also gave up, but the numbers weren’t actually that bad. Sales and profits increased significantly. However, the luxury watch manufacturer’s profit expectation was so high that the height of the decline increased accordingly.

This is also seen in the revised analyst ratings: The majority are still sticking with their buy ratings, while one downgrade follows another in their price targets. Accordingly, the headline was virtually unchanged from the day before the quarterly figures were released.

Although it is a little complicated, it is better quality

Quantitatively, the review is mixed due to the majority of disappointments. But this is only one side of the coin, as Swiss equity strategists can see largely positive things from the company’s results in terms of quality.

UBS Swiss equity strategist Stefan Meyer found that the results of the Swiss Leaders Index (SLI) of the top 30 Swiss companies were slightly better overall than expected: 43 percent better than expected, but 29 percent worse.

Omar Brem, Research Manager at Zürcher Kantonalbank, points out that the updates after nine months are not uniform and says: “Some companies managed to defy the difficult environment and surprise the market in a positive way. These included Novartis, Logitech and Schindler. On the other hand, some companies such as Swisscom or Gurit It lowered its previous forecasts for the current year in connection with its third-quarter results.

As a result, the earnings season for the third quarter of 2023 in Switzerland was mixed, says Matthias Geissbühler, head of investment at Raiffeisen Switzerland: “Overall, there were more shadows than lights. In addition to the ongoing pressure on margins, the development of incoming orders is also cyclical for many It has been disappointing for the company, making it clear that the economic wind is gradually leaving behind signs of a slowdown.

We expect a better environment in 2024

Three strategists agree on the reasons for the current headwind. On the one hand, the strong Swiss franc meant that sales and profits made abroad in francs were lower, which had a negative impact on the bottom line. On the other hand, weak economic development puts pressure on sales volumes. Geissbühler adds that rising refinancing costs and a certain fee pressure are also putting pressure on profit margins in many places.

Risks to profits remain high with the economic low point still ahead, according to UBS’s Meyer. «In the current heterogeneous environment, we recommend investing in quality and service companies. “When it comes to cyclical and mid-cap companies, we selectively recommend companies where market expectations and stock valuations are particularly low.”

“We do not expect a risky environment at the beginning of next year and therefore assume that large cap companies will outperform small-medium cap companies,” Brem emphasizes. The environment is expected to improve throughout the year towards the end of the second quarter of 2024, depending on, among other factors, the expectation that inflation will fall and central banks’ first interest rate cuts from March 2024. leading to increased risk appetite of investors and increased demand for small-mid cap capital.

Geissbühler also remains cautious and emphasizes that, in its opinion, profit expectations for 2024 are still too optimistic. The global economy is expected to weaken further in the first half of 2024.

However, it is important to vary by sector. From Raiffeisen’s point of view, the profit expectations of pharmaceutical companies Roche and Novartis are realistic and not too ambitious. But Geissbühler says downward revisions are still needed in various cycles. This means there is a hidden risk of profit disappointment in the annual financial statements, and particularly in the figures for the first two quarters of 2024.

Source :Blick