Italian Equity Market: 2Q23 Results – A Hard Braking in Earnings Beats

The 2Q 2023 results season for companies listed on the Italian Exchange saw a sharp slowdown compared to last quarter in terms of positive surprises: 'Above expectations' announcements fell to 41% (vs. 49% last quarter), 51% In Line and 8% Below in our preview sample (86 companies). It was also the lowest level of positive surprises in our preview sample since 1Q 2020, the first results season during the pandemic.

The slowdown was entirely due to the Non-Financial sectors: weaker domestic demand, a negative exchange rate factor, and a light-and-shady debt trend, while on the positive side, cost pressures are starting to ease; Financials still benefited from a solid interest margin and a lower cost of risk.

We believe the trend in corporate earnings is set to slow in the coming quarters. In 3Q23, for Financials, net interest income might approach its cyclical peak. For Non-Financials, we expect on the one hand still weakening demand, and on the other hand a gradual normalisation of cost factors, which, however, also brings with it lower pricing power.

SOURCE Intesa Sanpaolo Research elaborations