The February earnings reporting season witnessed solid financial results from most Australian companies in the S&P/ASX 200 index, which helped justify gains in the share market so far this year.
A twist of fate in commodity prices, which few people thought would rebound from the lows last year, supported the turnaround in resources companies, including mining giant BHP Billiton (ASX: BHP), which delivered a profit of US$3.2bn compared to a loss of US$5.7bn a year ago.
In addition, record-breaking home construction activities have benefited companies operating in the related industries, while a relatively weaker Australian dollar has helped companies with significant offshore operations.
"In short, the earnings season has been good. Very good," CommSec economists Craig James and Savanth Sebastian said in a research report on 1 March.
Of the 142 companies in the ASX 200 that reported half-year results, only eight posted a statutory loss for the six months to 31 December 2016. In other words, 94% of them made money.
Their combined earnings soared 123% over a year to $28.8bn, while average earnings per share were up 19%, CommSec said.
However, CommSec also pointed out that the jump in overall earnings was largely due to a significant boost from BHP Billiton, which presented a skewed picture of the earnings season.
Excluding BHP Billiton, total profit from companies reporting interim results rose 36% to $25.3bn, while average earnings per share increased 15%.
Meanwhile, 69% of the profitable companies lifted their earnings over 12 months, above the long-term average of about 60%, CommSec said. Their cash holdings climbed 12% from end-June to $83bn at the end of December.
A total of 125 companies, or 88%, declared a dividend – 67% of them paid more, 14% maintained their payout, while 19% reduced dividends. Overall, their combined dividends rose by 6.7% over the year.
CommSec said notably solid results came from BHP Billiton and Fortescue Metals Group (ASX: FMG) on the back of higher prices of commodities, especially iron ore and coal, as well as Cochlear (ASX: COH), LendLease (ASX: LLC), Nick Scali (ASX: NCK), and Treasury Wine Estates (ASX: TWE).
The worst performers included Brambles (ASX: BXB), Japara Healthcare (ASX: JHC), Telstra (ASX: TLS) and WorleyParsons (ASX: WOR).
As for the 28 companies that reported full-year results, 25 or 89% of them were profitable. Only two of these companies did not pay a dividend, according to CommSec.
Their cash holdings grew 8% from end-June to $26.8bn at end-December.
Adding in the 142 companies reporting interim results, total cash levels of all 170 companies were up by 11% to $110bn.
The rest of the ASX 200 stocks that did not announce their results in the February season have different financial reporting periods.
With growth of the Australian economy picking up in recent months, CommSec believes share prices have scope to track profits higher, especially when historically low interest rates make income from interest-earning assets harder to come by.
"Before the earnings season, the Aussie share market could be considered slightly overvalued with an historic price-earnings ratio sitting near 17, above the longer-term average of 15.7," CommSec economists said.
"But the latest earnings results justify the recent gains in the share market."
The ASX 200 had gained 1.7% this year up to 8 March, compared with a loss of 3.5% in the same period last year.
Some of the risks identified by CommSec that could impact markets include upcoming policy announcements from the Trump administration, US interest rates decisions, oil price movements and several elections in Europe, particularly those in France and the Netherlands.
"So clearly the share market will face some potential hurdles. And the risks are reasonably evenly balanced," CommSec said.
"The good news is that balance sheets across corporate Australia are in good shape. While some companies have continued to pay out dividends, others have also been keen to pay down debt levels, to reduce risk and provide some flexibility to respond to opportunities in 2017."