As July draws to a close, we turn our focus to the eagerly awaited August reporting season. This pivotal time will shed light on key trends, offering valuable insights into the stability of Australia’s economy, identifying sectors that have outperformed or underperformed, and providing guidance for investment opportunities as we head into the new financial year.
Let’s dive straight into the deep end of financials stocks which investors have already begun selling off ahead of the busy earnings season period. Investors are already selling off financial stocks ahead of earnings season. While only CBA (ASX:CBA) reports its full-year results in August, all four big banks have seen share price pressure due to overvaluation. CBA, which recently topped $190/share, has now dropped to around $173 as investors took profits and moved into growth sectors amid easing volatility. At $190, CBA was the world’s most expensive bank, trading at a PE over 33x, far above the sector’s 19x average. Overvaluation stemmed from passive exposure through superannuation funds, safe-haven demand, and higher interest rates. But as these factors fade, the banks are under scrutiny. This reporting season, focus on CBA’s Net Interest Margin, provisions, and guidance to gauge if the bull run has peaked.
During times of macro and market uncertainty, investors also tend to flock to staple stocks like the supermarkets. With the volatility experienced over FY25, investors sent shares in such stocks soaring which has led to, like the banks, over valuation of defensive stocks like Woolworths (ASX:WOW) and Coles (ASX:COL) heading into reporting season. Both supermarket giants posted low single digit earnings growth in the most recent quarterly update and therefore may face being sold off this reporting season as investors take profits from the run of staples stocks over the last year.
Tech stock valuations have also run hot heading into this reporting season, but investors will be hawkishly assessing earnings results to ensure headroom growth potential matches the sky-high valuations for some providers. Take Netflix for example, a company that trades on a PE roughly 40x forward earnings, boasts 260 million paid memberships, and posted double digit earnings growth and beat guidance… but this wasn’t enough in the eye of investors as shares in the streaming giant fell almost 3% upon the results being released. So, for our tech companies like TechnologyOne (ASX:TNE) which Bell Potter recently downgraded to a sell due to valuation stretching, growth potential and results exceeding expectations are critical to determine share price movement this reporting season.
Retailers remained resilient despite mounting headwinds throughout FY25. We expected eased earnings to hit H1, however, we are only now seeing the impact of prolonged elevated interest rates and eased discretionary spend, which has led several retailers like Accent Group (ASX:AX1), Adairs (ASX:ADH), and KMD Brands (ASX:KMD) to issue profit warnings or downgrade guidance amid elevated promotional activity eating into margins and weaker demand weighing on sales growth. This reporting season flat to low single digit earnings growth is expected among discretionary retailers.
With China’s promised material stimulus package to reignite economic growth in the region still yet to flow through to a material turnaround in demand of Australia’s key commodities, it is expected that subdued demand and some weaker key commodity prices will eat into earnings growth for a second financial year come August results for the likes of BHP (ASX:BHP), Rio (ASX:RIO) and Fortescue (ASX:FMG). Iron ore demand remained underwhelming throughout FY25 as China grappled with a property crisis and an economy in deflation mode with low GDP growth. While the iron ore division of our blue-chip miners will likely face earnings pressure this reporting season, the diversification of BHP (ASX:BHP) and Rio (ASX:RIO) into the green energy transition through acquisitions in copper and lithium respectively will ease some of the earnings depletion concerns.
Healthcare stocks have produced a mixed bag over the last year in terms of results with some key read outs leading to double digit share price appreciation while failed clinical trials have seen the near end of others. Heading into reporting season, the companies on watch are those with high growth potential, minimal impact from Trump’s tariff introduction, global exposure, and commercialised products and treatments available on the market. We were impressed by ResMed’s (ASX:RMD) most recent results with margin expansion of 59%, and income from operations increased 14%. ResMed has strategically managed to overcome the noise of weight loss drugs impacting demand, to in fact partner with weight loss drugs to ensure sleep apnoea patients have the best possible treatments available, which supports the market leadership nature of the company in the sleep apnoea treatment sector.
Consensus expectations across the board for reporting season is for muted or low single digit earnings growth amid widespread headwinds, macro uncertainty, subdued demand and elevated interest rates throughout FY25. Margins and cost control will be closely watched by investors this reporting season as markets decipher which company’s managed capital well during the tougher operating conditions. Guidance, as always, will be crucial to provide investors with some certainty around FY26 conditions.
Some surprising winners out of this reporting season may be in the materials space as the iron ore price has remained resilient despite subdued demand, and diversification into the green energy transition will boost revenues, especially for those involved in copper.
While the tech sector may be more volatile, certain Aussie tech stocks could surprise to the upside if they report stronger-than-expected growth. With rising global demand for cloud computing, cybersecurity, and digital payments, some tech firms with international exposure could deliver positive earnings surprises.
Despite headwinds mounting, discretionary stocks could outperform this reporting season given the resilience of the Australian economy during FY25. Retailers, particularly those in online goods space with low inventory levels and strong cost management, could see positive results as consumer sentiment holds up, supported by low unemployment.
Key risks to watch out for this reporting season:
- Inflationary Pressures: Rising costs and interest rates could weigh on earnings for certain sectors, particularly those with high operating costs.
- Global Supply Chains: Continued supply chain disruptions (particularly in tech and retail) may affect profitability.
- China’s Economic Health: Since Australia has strong trade ties with China, any slowdown in China’s economy could impact mining exports and resources.
- Tariff implication: Companies with direct or indirect exposure to the US tariff outlay may signal the financial impact of such taxes in FY25 results so this is something for investors to be mindful of.
- Guidance: For companies that previously issued guidance but fail to do so this reporting season, investors will likely respond very negatively as this can signal further uncertainty is expected.
With that in mind, we will be covering the Australian reporting season throughout August with videos on Wednesday’s and Fridays throughout the month.
This information is general in nature and does not take into account your financial situation, objectives or needs. You should consider whether it is appropriate for you. You should read our Financial Services Guide and any relevant Product Disclosure Statements before making an investment. For more information visit belldirect.com.au or call 1300 786 199. Bell Direct is the trading name of Third Party Platform Pty Ltd ABN 74 121 227 905, AFSL 314341.