Week 3: Reporting Season Wrap

The following is a transcript of an interview with Will Riggall, CIO – Bell Financial Group. You can watch the original interview here.

Sophia Mavridis: All right, let’s go. Thank you for joining us this Friday, the 27th of February. I’m Sophia Mavridis, and I’m joined today by Bell Financial Group’s Chief Investment Officer, Will Riggall. Will, thanks for joining us again this Friday for another reporting season wrap-up video.

Will Riggall: Oh, it’s great to see you again, Sophia. To be honest, it’s been a pretty happy season. I feel like a bit of a broken record every time I come in for a chat because I’m saying we’re up another percent, but we are. The ASX has had another strong week, up a bit over 1%. Since the start of the month, we are up just under 4%, which is really strong. We haven’t had a month like this on the ASX for a while.

To put that into context, there have been real challenges for offshore markets—namely the S&P 500 and, even more so, the NASDAQ—as those tech fluctuations continue to roll through. But as we’ve discussed, we have a different mix of companies in Australia. While we will talk about a specific IT and technology company today, the overall takeaway is that the Australian economy is strong, companies are performing well, and we have some great global leaders here that we should continue to invest in.

Sophia Mavridis: Last week, we talked about how stock-specific drivers were moving sectors. What are you seeing across the sectors this week?

Will Riggall: It’s a real mix again underneath this consistent 4% growth. We are seeing significant moves sector-wise. The winners this week were in the materials sector, with resources performing well again. Regarding stock-specific moves, if we look at the staples sector—specifically Woolworths and Coles—both companies reported this week. The staples sector is up around 4.5% so far.

Then there is IT. Last week, we discussed the challenges ahead for that sector, but we’ve seen a bounce this week with IT rebounding by about 3%.

Sophia Mavridis: You mentioned Coles just then, so let’s jump into that. This morning, Coles reported solid earnings and sales growth and lifted its dividend. However, the results still seemed relatively weak compared to Woolworths. Coles’s sales revenue rose almost 4% from a year earlier, while Woolworths’ sales grew just under 6% for the same period. What are you looking at there?

Will Riggall: Well, Coles has certainly lagged behind Woolworths in terms of operational performance and share price movement for almost two years now. Woolworths had significantly underperformed previously, but this result really “knocked it out of the park.” The stock is up about 15% this week, while Coles is down around 5%.

What drove that change was a final turnaround from the new management. They got the simple things right—and as they say, “retail is detail.” They ensured their pricing was right and that stock was actually on the shelves at those price points. In-store execution was strong, leading to an EBIT (Earnings Before Interest and Taxes) beat of about 6% against market expectations.

Comparing the two, we’ve seen a continuation of Woolworths’ outperformance in the first seven weeks of the year. Woolworths is sitting just under 6% sales growth, while Coles is lapping tougher numbers from last year. For domestic supermarkets, if you get the top-line revenue moving, the gross margins really start to perform. That is what you’re seeing with Woolworths, whereas Coles is cycling through tougher comparisons and possibly heading the other way.

Sophia Mavridis: Does Bell Potter have a preference between the two?

Will Riggall: It has actually been a very strong call from our analyst, Jonathan Snape. He picked the move from Coles to Woolworths late last year. For those who follow Jonathan—and I suggest you should, as he is very strong in the retail and agricultural space—he called it well. Woolworths continues to be our ongoing preference.

Sophia Mavridis: A strong stock for shareholders, I’m sure. Will, you also mentioned IT earlier. Let’s move over to WiseTech. They announced this week that they are cutting 30% of their staff as AI reshapes the workforce. Yesterday, Bell Potter’s commentary on WiseTech landed on the front page of the Financial Review. Rob Crookston spoke about how the stock is trading at a materially lower multiple, suggesting that for investors looking beyond short-term volatility, the valuation is becoming more compelling relative to its outlook. Is that what you’re seeing? Does Bell Potter see the WiseTech sell-off this week as perhaps too aggressive?

Will Riggall: WiseTech has been the bellwether for Australian technology. The current challenge is the question of whether AI will start to compete away these Software-as-a-Service (SaaS) businesses once they connect other data points and provide similar tools. WiseTech develops tools for cargo shippers to manage timelines and stock. The price peaked over $120.00 and sits around $49 today—though it is actually up 20% from its intra-month low.

Our analyst, Chris Savage, still thinks it’s great value. If you believe in the turnaround, there is a lot of value on offer. The timing is a little uncertain because many concerns involve how the business will be impacted in future years. However, WiseTech has shifted the narrative on AI disruption. By cutting a significant number of staff and reinvesting in AI, they are aiming to be “agentic AI-led.” They are effectively disrupting themselves to lead the next technology shift. If they succeed, the stock is trading at a significant discount to where it could be in a couple of years.

Sophia Mavridis: Sounds like a leader in the sector. Let’s jump over to Fortescue Metals (FMG). FMG rewarded shareholders this week with a strong increase in a fully franked interim dividend. I believe it was up to $0.62 from $0.50 a year ago, demonstrating a strong balance sheet and cash flow resilience. What is your outlook on the stock, and how does it compare to BHP?

Will Riggall: Fortescue did a great job with its results, beating market estimates with an EBITDA about 5% ahead of expectations. There are echoes here of why BHP has been rewarded; operating cash flow at Fortescue was up 32%, which gave them the confidence to pay that higher dividend. They have strong end markets and increasing production.

However, BHP has something Fortescue doesn’t: a significant shift toward future minerals, specifically copper at scale. While Fortescue is up about 5% week-to-date, BHP has continued its run, up over 8%. We need to be cognizant of what the market wants: operational strength and increasing dividends are great, but the strategic shift toward copper exposure—which now accounts for over 50% of BHP’s earnings—has really sparked shareholder interest.

Sophia Mavridis: Reporting season is drawing to a close now, Will. It’s been a strong month. What happens in the weeks that follow?

Will Riggall: We are at the 27th of February, so the month is essentially done. But this is actually when the real work begins. During the season, you have a flood of information, management meetings, and calls, but you don’t always have the time to sit and sift through the fine details.

Now, both retail and institutional fund managers will go back through the results with a fine-tooth comb. This usually leads to another wave of portfolio shifts. If you think you’ve missed out on a stock you like, that’s usually not the case; those positive fundamental indicators tend to continue driving performance in the coming months. It’s time to sharpen your pencil and look at what you can do within your portfolios.

Sophia Mavridis: That’s great insight, Will. Thanks for joining us again this Friday, and we’ll catch you very soon.

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.