February Result Season 2025: The Wrap

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By Rudi Filapek-Vandyck, Editor

It almost hurts to think January had shown so much promise and optimism about what might lay ahead for the new calendar year.

The circa 15 months old bull market for equities, predominantly carried by AI and other technology-related stocks, plus the banks (!), seemed poised to become more inclusive, this time also pulling in laggards and losers from the past two years on expectations of RBA rate cuts and a bottoming out for the local corporate earnings cycle.

Even if we exclude the rumblings and uncertainty from US import tariffs that has impacted global financial markets over February and March, there’s simply no escaping the fact the local results season did not live up to expectations.

Companies that had been struggling to grow their business and margins over the years prior are still struggling and even with the bar set relatively low for the season, outperforming analysts’ expectations proved too much a challenge for many.

Not making matters any easier, those sturdy, reliable Winners from the years prior that did manage to release solid operational performances mostly saw their share price weakening in the aftermath as investors’ mind was set on finding new Winners rather than continuing with the proven, known momentum-leaders.

February thus quickly morphed into an unpleasant challenge for many. On UBS‘s numbers, the average intra-day share price volatility throughout the month surged to 7%.

This is practically unheard of, but probably shouldn’t surprise in light of the savage punishments that befell result releases by companies including AMP Ltd ((AMP)), Bendigo & Adelaide Bank ((BEN)), Domino’s Pizza ((DMP)), Integral Diagnostics ((IDX)), Mineral Resources ((MIN)), Redox ((RDX)), SiteMinder ((SDR)), and plenty of others.

Data gathered by Goldman Sachs sound even more dramatic with 20% of all reporting companies in February experiencing a share price move of 10% or more on results day. If that UBS number is unheard of, what term should we use for Goldman Sachs’ assessment?

The results itself proved a little better than forecast, on balance, but it didn’t stop earnings forecasts from declining with corporate Australia staring at its third year in succession of negative growth in earnings per share (average for the ASX200).

FNArena’s Monitor takes a more wholesome approach, also taking into account broader metrics and forward-looking statements issued by companies, and on this approach the season proved a little better than August last year, with the emphasis on “a little”.

Two very important factors need to be considered: firstly, August 2024 might have been the worst results season in the history of FNArena’s Monitoring, going back to August 2013. Secondly, the bar had risen slightly ahead of the season, but was all in all still very low.

Contrary to what one might suspect, a low bar does not by default translate into an easier challenge for Australian companies because, of course, there are reasons as to why expectations are so low.

And that’s exactly the conclusion from February results; corporate Australia needs all the help and assistance it can get, including from the federal government, the RBA, from China, and elsewhere.

Unfortunately, the Trump administration starting trade wars through import tariffs on just about everyone looks like the exact opposite of what the proverbial doctor might have ordered.

The key numbers for the February 2025 season look similar to those from twelve months ago, with 32% of all results beating expectations but with 33% falling short. In comparison, August last year saw 27% beating forecasts and 37% disappointing. February last year at least saw more ‘beats’ than ‘misses’; 33% versus 28%.

Strictly taken, that makes February this year not as good as last year’s.

The numbers remain similar when comparing 49 rating upgrades and 57 downgrades, with target prices in aggregate lifting by 3.72%, see the archive from the past 12 years on the website.

https://fnarena.com/index.php/past-corporate-results-analysis/

Small cap companies contributed heavily to the disappointments, so if we restrict our numbers to the ASX200 we see beats, meets and disappointments lining up as approximately one third each. This is exactly the outcome from twelve months ago.

February’s Second-Half Skew

It’s a trend we picked up multiple years ago but local results seasons are becoming increasingly concentrated towards the final week of the month. One explanation given for this phenomenon is that Australia doesn’t have enough accountants to deal with the sudden surge in workload that occurs in the lead-up to results deliveries.

Given the tendency to update the market with rather weak-looking financials, one can but wonder whether this too is a contributing factor? The one observation that stands tall is most reporting seasons locally deteriorate noticeably as the final deadline approaches, and February 2025 has equally played to that script.

For comparative purposes, we have gone back to our own Monitor updates for February last year. The numbers back then were equally very much skewed towards the final week of the season. This year, by the end of week three we hadn’t even reached half-way in terms of companies reporting.

While there may be other factors in play, such as the month being spread out over 4.5 or 4 weeks, the underlying observation nevertheless remains. If the ASX were to decide to scrap the first week completely, and relegate those companies into the remaining period, investors would not be able to tell the difference.

Companies reporting and reviewed by the FNArena Results Season Monitor:

February 2024
week 1 = 21
week 2 = 68
week 3 = 211
final = 379

February 2025
week 1 = 10
week 2 = 47
week 3 = 155
final = 381

Such a heavy final week-weighted experience puts a lot of pressure on the small team here at FNArena, which no doubt our readers and subscribers understand and appreciate.

But spare a thought for those analysts who need to read, attend and listen, analyse, assess, re-calculate and produce an updated research report on each of the companies under their coverage, also taking into account research teams across the industry have slimmed down noticeably over the years past.

Final Assessment

Here’s a summary for the season as published by Ord Minnett, I very much doubt whether I can do a better job at it myself:

“Banks are seeing pressure from contracting net interest margins as competition ramps up, with falling rates an additional headwind. Health insurers offer earnings upside, while general insurers could hold up as claims inflation moderates faster than premium growth. Resources remain challenged, particularly iron ore. Lower interest rates should boost real estate and consumer stocks. Healthcare has valuation appeal, but parts of the sector, particularly services, appears challenged.”

But also: “Growth had the best reporting season again, while Resources were the laggard as they have been in recent years”. (Macquarie).

Both dividends and sales/revenues had a slight skew towards disappointment and that, as all investors should know, is probably the surest indication of corporate Australia doing it tough.

On Morgan Stanley’s number crunching, revenues have now net disappointed to the downside for two reporting seasons in a row; a phenomenon not witnessed over the past decade.

Following on from the -5.4% average retreat in EPS in FY24, consensus is now positioned for an average decline in EPS of -0.7% for FY25. Taking a glass half-full vision: while that’s still negative, it’s a lot better than last year.

Consensus forecasts are for 8% growth in FY26, to be followed by 6.3% growth in FY27. History shows those numbers will be a lot lower by the time results are released for each financial year.

Trading on an average Price-Earnings (PE) ratio of 17.7x, the Australian share market cannot exactly be labeled as “cheap”. The same conclusion emanates from the average dividend yield for the ASX200 which has now declined to 3.7% but was closer to 3.5% at the end of February.

It wasn’t that long ago the average for the Australian market was steadfastly trending between 4%-4.5% without ever breaking out of that range.

Stock Preferences – Many Changes

Given the circumstances, the February results season has triggered many changes in Conviction Calls, portfolio positioning and Best Stock Ideas selections. See the line-up below.

Analysts at Morgan Stanley have yet again communicated their Conviction Calls among ASX-listed smaller cap companies. That selection post-February consists of the following six:

-Corporate Travel Management ((CTD))
-Generation Development ((GDG))
-Dicker Data ((DDR))
-McMillan Shakespeare ((MMS))
-Propel Funeral Partners ((PFP))
-Superloop ((SLC))

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Analysts at Goldman Sachs too have shared their key calls post the season described as “volatile and idiosyncratic”.

Key positive picks:

-Life360 ((360))
-Codan ((CDA))
-Collins Foods ((CKF))

Do note Collins Foods reports on a different cycle and will release FY24 financials in July.

Fast food chain Guzman y Gomez ((GMG)) has been selected as a prime Sell as the analysts cannot reconcile what they believe is an overly ambitious expansion plan with an elevated valuation, on top of overhang from shareholders coming out of escrow in March and August, respectively opening up 13% and 40% of total capital possibly up for sale.

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Portfolio managers at UBS decided to downgrade the local Energy sector to Underweight led by poor earnings results released by the sector in February, as well as an equally poor macro picture overhanging the sector’s outlook.

UBS also highlighted its fundamentals based view for an Underweight allocation to Australian banks was, simply put, vindicated in February. The broker’s model portfolio retains an Overweight allocation to Insurers, TMT (Technology, Media and Telecommunication) and to Industrials.

The local Heathcare is also Underweighted, as are Small Caps.

As far as individual stocks are concerned, UBS’s list of Most Preferred Exposures has witnessed the inclusion of six names:

-BHP Group ((BHP))
-Lifestyle Communities ((LIC))
-Collins Foods ((CKF))
-Medibank Private ((MPL))
-Light & Wonder ((LNW))
-Life360 ((360))

Are no longer on the broker’s Most Preferred list:

-Cleanaway Waste Management ((CWY))
-NextDC ((NXT))
-Rio Tinto ((RIO))
-Santos ((STO))
-Suncorp Group ((SUN))

The switch in preference for BHP over Rio Tinto is due to BHP’s higher quality iron ore operation in the Pilbara, but also because of less risks from tariffs, explains the broker.

UBS’s selection of Least Preferred exposures currently consists of:

-APA Group ((APA))
-Aurizon Holdings ((AZJ))
-ASX Ltd ((ASX))
-Bank of Queensland ((BOQ))
-CommBank ((CBA))
-IDP Education ((IEL))
-JB Hi-Fi ((JBH))
-Reece ((REH))
-Sonic Healthcare ((SHL))

Have been removed from the negative selection:

-Cochlear ((COH))
-National Australia Bank ((NAB))
-Scentre Group ((SCG))

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With February one of the most volatile seasons ever observed, analysts at Morgans believe the observation should act as a reminder to investors it’s best to take an active approach to portfolio management and allocation.

Have been added to Morgans selection of Best Ideas:

-Corporate Travel Management ((CTD))
-DigiCo Infrastructure ((DGT))
-Guzman y Gomez ((GYG))
-Light & Wonder ((LNW))
-Megaport ((MP1))
-Orica ((ORI))

No longer included:

-Camplify Holdings ((CHL))
-NextDC ((NXT))
-PolyNovo ((PNV))
-The Lottery Corp ((TLC))

Morgans’ Best Ideas now comprises of 34 ASX-listed companies, also including the likes of Collins Foods ((CKF)), WH Soul Pattinson ((SOL)), QBE Insurance ((QBE)), ResMed ((RMD)), and WiseTech Global ((WTC)). The full list will be included in next week’s edition.

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Athena Kospetas, research analyst at Ord Minnett has equally drawn some key conclusions from the February results season and reviewed the broker’s most preferred sector exposures.

At its core, the suggestion made to investors is maybe, at least for the time being, preference companies with strong balance sheets, leading market positions and positive earnings momentum.

Those are the key principles that underpin Ord Minnett’s updated sector allocations and preferences.

-Financials; the preference is for Judo Bank ((JDO)) and Macquarie Group ((MQG)) and if you must own one of the Big Four, the preference goes out to ANZ Bank ((ANZ)).

Elsewhere, the preference lays with Insurance Australia Group ((IAG)), as well as with insurance brokers AUB Group ((AUB)) and Steadfast Group ((SDF)), and with Medibank Private ((MPL)).

-Resources; Northern Star ((NST)) has been chosen as a large cap gold exposure, while Vault Minerals ((VAU)) has been selected among smaller caps. BlueScope Steel ((BSL)) is equally viewed positively (tariffs are ultimately a positive, the broker predicts).

-Consumer Stocks; Ord Minnett’s three favourites are Metcash ((MTS)), Coles Group ((COL)), and Aristocrat Leisure ((ALL)).

-Real Estate; Dexus ((DXS)), Vicinity Centres ((VCX)), and Waypoint REIT ((WPR)) are preferred.

-Energy and Utilities; Most preferred are Karoon Gas ((KAR)), Santos ((STO)), APA Group ((APA)) and Origin Energy ((ORG)).

-Healthcare; the three sector favourites are CSL ((CSL)), ResMed ((RMD)), and Regis Healthcare ((REG)).

-Communication Services and IT; Xero ((XRO)), SiteMinder ((SDR)), Telstra ((TLS)), and Aussie Broadband ((ABB)) are the favourites (all for very different reasons).

-Industrials; Ord Minnett favours Brambles ((BXB)), Qube Holdings ((QUB)), and Qantas Airways ((QAN)).

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Jarden publishes a list of High Conviction Calls, dubbed Best Ideas, for investors looking to invest in ASX-listed smaller cap companies. That list, updated post February, now carries 17 Best Ideas.

In order of prospective total shareholder return, the following seven stand above the corn field (in order of return  potential):

-Dicker Data ((DDR))
-GQG Partners ((GQG))
-Qualitas ((QAL))
-SiteMinder ((SDR))
-Universal Store Holdings ((UNI))
-EVT Ltd ((EVT))
-Temple & Webster ((TPW))

Apart from those seven, the following have been selected:

-Genesis Energy ((GNE))
-Harvey Norman ((HVN))
-Integral Diagnostics ((IDX))
-Ingenia Communities ((INA))
-Jumbo Interactive ((JIN))
-Karoon Energy ((KAR))
-Michael Hill ((MHJ))
-Pepper Money ((PPM))
-Superloop ((SLC))
-Vault Minerals ((VAU))

In terms of changes made, all of Nick Scali ((NCK)), Pointsbet Holdings ((PBH)) and Regis Healthcare ((REG)) are no longer selected, while both Dicker Data and Jumbo Interactive have freshly joined.

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Macquarie’s post-February update on Australia’s industrials companies centres around the following statement:

“In an uncertain macro and market context, we are preferring defensive positioning, where growth visibility is above-average.”

Macquarie in particular likes Amcor ((AMC)), Brambles ((BXB)), Cleanaway Waste Management ((CWY)), and James Hardie ((JHX)).

Still not liked remains Fletcher Building ((FBU)).

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UBS’s smaller cap favourites (“Key Picks“) post February are:

-Codan ((CDA))
-Dicker Data ((DDR))
-Hansen Technologies ((HSN))
-Life360 ((360))
-MA Financial Group ((MAF))
-NextDC ((NXT))
-Ridley Corp ((RIC))
-Superloop ((SLC))
-Web Travel Group ((WEB))
-Zip Co ((ZIP))

In addition, the UBS team covering Emerging Companies’ also highlights a positive stance on Corporate Travel Management ((CTD)), Megaport ((MP1)), Imdex ((IMD)), and oOh!media ((OML)). They are cautious regarding ARB Corp ((ARB)).

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A post-season update on financial services by stockbroker Morgans has resulted in the following Key Sector Calls (in order of preference):

-QBE Insurance ((QBE))
-Suncorp Group ((SUN))
-Generation Development ((GDG))
-MA Financial ((MAF))

And while February overall provided a rather mixed bag from the local Healthcare sector, Morgans’ team of sector analysts maintains sector fundamentals are strong and valuations attractive. Risk/reward is seen as pointing to upside.

Morgans’ sector favourites: CSL ((CSL)), ResMed ((RMD)), Avita Medical ((AVH)), and Imricor Medical Systems ((IMR)).

Staying with the Healthcare sector, Jarden analysts were certainly disappointed overall, but equally believe market responses throughout February for the sector were often too punitive and too harsh.

Jarden’s sector favourites are CSL ((CSL)), ResMed ((RMD)), Telix Pharmaceuticals ((TLX)), and among smaller cap companies, Integral Diagnostics ((IDX)) and Regis Healthcare ((REG)).

Back to Morgans where ALS Ltd ((ALQ)) and Monadelphous ((MND)) have been nominated for exposure to contractors.

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Attached (see top of story) is FNArena’s final Monitor for February.

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