• The RBA has highlighted non-mining business investment as an important driver of economic growth.
• ASX200 companies expect earnings to climb, but the outlook for capital investment has cooled since last year.
• Instead, companies have indicated future profits will be allocated towards dividends and share buybacks.

The ASX200 company reporting season for December 2017 is in full swing, and the results suggest Australian companies are feeling optimistic about earnings growth.

But the outlook for capital expenditure (capex) has cooled since the most recent earnings season in August, according to Credit Suisse’s equity analysts Hasan Tevfik and Peter Liu.

With reporting season around one-third complete, the pair have crunched some numbers to account for changes in the outlook for company earnings, dividends, share buybacks and capex.

Analysts have so far downgraded their earnings per share (EPS) outlook across the ASX200 by 0.3%, but it’s “not as shabby as it first seems”, Tevfik and Liu said.

When adjusted for the negative impact of three organisations — Commonwealth Bank, Wesfarmers and Fletcher Building — ASX companies reported a solid EPS upgrade of 0.6%.

Here’s Tevfik and Liu on the outlook for capex:

The stand-out feature of the August 2017 reporting period was the considerable increase in the capex outlook. The gains here were also broad based.”

There has again been upgrades to business investment, however, these have been smaller and focused among the commodity companies.

A pickup in capital expenditure — particularly among non-mining companies — has been cited by the RBA as an important growth driver for the economy.

And capex data from the ABS for the September quarter showed solid levels of investment, with an upgrade for the 2017/18 outlook.

Along with public infrastructure projects, the flow-on effect from increased business investment could help to offset ongoing weakness in domestic consumption.

Tevfik and Liu also highlighted the possible return of “animal spirits” among Australia’s big companies in the second half of last year.

But the latest round of results appears to indicate something of a return to the status quo for Australia’s corporate sector.

For one thing, mining companies have historically accounted for the bulk of Australia’s capex anyway, given the capital-intensive nature of big mining projects.

And with commodity prices at elevated levels it’s perhaps not surprising that resources and materials companies are flagging more projects in the pipeline.

Looking more broadly across the ASX200, the Credit Suisse analysis indicates that non-mining companies aren’t planning to reinvest their future profits on capex.

Instead, it looks like they’re planning to do what they’ve always done: Pay a higher dividend.

“Expectations for ASX200 dividends per share have increased by 0.7% so far in February. They usually decline by 0.2% in a reporting season month. This equates to an additional $500 million in dividend payments for the 12 months to June 2018,” the analysts said.

Share buybacks are also on the agenda, with Tevfik and Liu counting an additional $820 million worth of buybacks so far, led by a Dexus announcement to buy back $500 million – or 5% — of its stock.

So while capital expenditure might not be a particularly high priority outside of the mining sector, the big end of town looks to be in reasonable shape.

“Expectations are now for ASX200 EPS growth of 8.2% for June-18 and 5.2% for June-19,” Tevfik and Liu said.

“Given the solid underlying tone to the current reporting period we believe June-19 forecasts are vulnerable to upgrades.”

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