Not what you may have expected!

The following article will appear in shortened form in the Australian Financial Review form on Monday online and perhaps in print on Wednesday, presuming it makes the editors cut.

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Reporting season for FY23 is over with its usual hit and misses. While results have been assessed against their expectations and significant reporting disseminated, often it is not until some time after when companies can be benchmarked against one another that we can measure how they actually stack up against perceptions.

Being specific, investors, analysts and the market can often have a perception of business in the lead up to their latest report. Is it Good? Cheap? Hot? Or Not?. But once we have a chance to analyse their numbers and benchmark them against their peers, all perceptions are just that. And once we are able to assess and benchmark the Factors that drive a stock's returns, we often have results presented to us that make us double check our biases, to the positive and/or negative.

Below is a list of stocks that have been assessed and benchmarked following this Reporting Season whose results did not match previous perceptions. Looking into the numbers of a company is like looking into its soul and often creates a conflicting narrative.

AMP - AMP Limited

The trials and travails of AMP (ASX:AMP) are well known and require no further explanation. However as the company embarks on a massive business transformation, it was one of the big improvers this reporting season and definitely has thrown up a challenge to previously held opinions on the stock. The company is fundamentally different than it was when it listed. AMP Capital and the Life Insurance business have been sold, the financial advice business teeters on the edge and revenue has cratered from $19B in 2013 to be forecast at $1.3B in FY23.

The company’s Quality rank almost doubled after the latest report, though it is still low at 51. The Improvement however is the clearest sign that the troubles of the past may be behind it as it emerges as a much simpler business that is improving operations and free cash flow per share and seeing a reduction in long term corporate borrowings. Notwithstanding the numerous challenges that are still ahead of it, past perceptions may already be changing as the company’s Momentum score has increased by 60% in the last month. Reflecting both the improved price sentiment and the uptick in analysts earnings expectations over the last month.

MFG - Magellan Financial Group Limited

In the same boat, Magellan Financial (ASX:MFG) needs no introduction, neither do the challenges it faced in the lead up to its latest report and still does. Not many would have hoped for a good result from MFG therefore expectations were low. Some may argue that there is little to change that perception given the steady outflow of funds from the business.

However perhaps the perception that it is a lost cause at this point in the cycle may be ill-founded. The company remains high quality with strong return on Capital and Equity. Further margins remain strong and the significant price decline has meant that relative to its performance metrics, the company reflects solid value when benchmarked against the market and its peers. Further after years of forecast EPS downgrades, the latest result provided a glimmer of hope with te first consensus upgrade in years. This coupled with the prolonged basing pattern help improve the Momentum Factor for the stock significantly, despite the fact the price has been in the doldrums for a while. Investors will hope the company can continue to build on this momentum moving forward and change the perception of the stock being yesterday’s hero.

BEN - Bendigo and Adelaide Bank

For some time the regional banks have been perceived to be the laggards of the finance sector. Too big to throw their weight around in a competitive home loan market, yet too big to make sizable gains like nimble mortgage originators. But Bendigo and Adelaide Bank (ASX:BEN) was a stand out this earnings season and blew previously held preconceptions away. The company now generates a very solid ROE and ROC, it was cash flow positive and its Piotroski F score improved significantly.

BEN changed perceptions this period by lifting earnings, improving net interest margin, growing customers as well as the dividend. Further Agribusiness and Business Banking now make up about 30% of the group's total earnings. Further after having played catchup in the digital banking space for sometimes, demonstrable gains are now being made. Overall BEN saw a strong jump in its overall StockRank.

JLG - Johns Lyng

Building services provider Johns Lyng (ASX:JLG) may have expected to have felt the squeeze that many operators in the property building / renovations market have faced. But the latest annual result showed they have now got their pricing model in order which is promising given they have a record number of job registrations and work-in-hand pipeline leading into this year.

There are reasons to change one’s perception of JLG. Further to being able to control costs in a difficult sector, they have a defensive earnings base of insurance companies and government departments. This exemplified by no single insurance company customer makes more than 4% of revenue. The Quality of the business improved significantly in the latest period and warrants a re-think.

VEA - Viva Energy

Operationally, there was a lot going for Viva Energy (ASX:VEA). Refining margins have been strong, both on account of the war in the Ukraine and crude oil prices falling (as crude is an input cost, a falling crude price helps refineries.) Further operational issues at its major competitor meant that the perception was that this was a company that had a lot of factors working in its favour.

However following the release of its latest set of numbers somewhat underwhelmed. Hopes would have been for stronger factor scores across the board. However, with a solid pullback in earnings, much of that due to the fall in the Energy & Infrastructure business who had its own operational issues, this meant when benchmarked against the market and its peers, VEA saw the Quality rank fall significantly as ROE and ROC both suffered. Further the earnings pullback saw a stock which once traded at an attractive valuation come under some strain. Investors are backing on an improved operational performance and immediate traction from the On-the-Run acquisition to support their belief, else the numbers don’t match perception.

CCP - Credit Corp

For many years, Credit (ASX:CCP) was held in the highest regard by fundamental investors and earned its reputation as a rock solid quality business. However the latest results suggest that perception may need to change as flatlining debt purchases and lending impacted the bottom line.

The biggest impact on CCP was also felt within the Quality score which fell into the 30’s, this rather large pullback as a result of both operating and free cash flow turning negative, and the company experiencing a fall in its Piotroski F score to just 2 from already low levels. Perhaps it's time for investors to change their previously held perceptions of the business.

* Denotes latest result was a half year figure so TTM (Trailing Twelve Month figure) is displayed

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