Analyst positive despite skittish market in Australia

Review of the profits season that's just finished. Did the companies that reported this year surprise the analysts or not?

DAVID CASSIDY: Well, I think, Alan, it was still a positive season in terms of surprisingly good results, although I think probably the momentum in that surprise was probably a little bit less than we've been used to in previous seasons but still overall still a good season and UBS upgraded both their '07 full year and '08 estimates by around about 2 per cent off the back of the reporting season. So a pretty good performance from corporate Australia, I think.

ALAN KOHLER: And what about the companies themselves, was the guidance from the companies generally improved this time around?

DAVID CASSIDY: I think the outlook statements were quite strong and that led us to move up our one year forward numbers in the order of about 2 per cent overall.

ALAN KOHLER: So in the light of what you've seen in the profit season, when the correction hit the stock market a couple of weeks ago, how far ahead of fair value do you think it had got?

DAVID CASSIDY: Well, I think certainly PE ratios have been expanding for the previous six months, I think, largely courtesy of the private equity and M and A activity we've seen in the market. So I think we had the situation late February where the industrials ex-banks were trading on around about 19 times forward earnings, which had moved up around about 16 times forward earnings middle of 2006. So certainly a lot was in the price in terms of that industrial share market. So we really did need a good reporting season. We got it but I'd still say that as we were standing pre-correction there was a lot in the price of those industrial shares.

ALAN KOHLER: Well, the market corrected 6 per cent and then rebounded a bit. How does it stand now do you think, is it where it ought to be given the reporting season?

DAVID CASSIDY: I would still say the Australian market when you look at it, particularly the industrial segment which has been the main focus of private equity and M and A activity, is probably still looking a little bit stretched on a valuation perspective, but I think when you look at the broader environment for shares, I still think it's quite a good environment for equities as an asset class, so I would expect that despite those stretched valuations, you know, I think the primary trend for equities over the next 6 to 12 months is still up.

ALAN KOHLER: But in the short term, are you advising clients that the correction is over or not?

DAVID CASSIDY: The way I would couch it would be that I think a significantly new low is probably unlikely. I think we may revisit the lows we saw last week. You know, we may have to do some work around these levels for a month or two, but I think the chance of a significant lurching down to a fresh low is probably unlikely and still to reinforce the view that on a six month view, I think Australian equities are headed higher.

ALAN KOHLER: So how soon do you think it will reach 6,000 again?

DAVID CASSIDY: I think there's still a quite reasonable opportunity we could see the ASX 200 back above 6,000 before June 30, particularly we when we consider the very strong flows we are expecting from the superannuation system through the second quarter.

ALAN KOHLER: So what's your forecast for the calendar year?

DAVID CASSIDY: I think something in the order of 6,200 to 6,300 is certainly still an achievable target.

ALAN KOHLER: So another 10 per cent?

DAVID CASSIDY: Yes. In sort of framing that forecast I'm working on the premise that global equities are still going to have quite a strong year. When I look at global equity valuations they probably look more compelling value than Australian equities, so I'm looking really for the global market to help us move up that 10 per cent through the course of the next 9 months or so.

ALAN KOHLER: Thanks very much for joining us David.

DAVID CASSIDY: Thanks Alan.
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