Rudi’s View: A Glass Half-Full Outlook

This story features HARVEY NORMAN HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: HVN
The company is included in ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck, Editor

A Glass Half-Full Outlook

By Rudi Filapek-Vandyck, Editor

Dividends included, the Australian share market gained 3.10% throughout the local August results season, so it must have been one cracker of a performance put in by corporate Australia.

Share price moves dominate investor views and experiences, but we all know there can be multiple factors and drivers impacting.

Even in results season, the main game is not only about corporate earnings and dividends.

New Records in August

Last month, investor judgment wasn’t so much about what companies had achieved, but whether there were enough reasons to confidently assume things are getting better.

Two sectors unequivocally said ‘yes, the outlook is brightening’. Those sectors are consumer discretionary and contract services providers. Think Harvey Norman ((HVN)) and Adairs ((ADH)), but also SRG Global ((SRG)), Macmahon Holdings ((MAH)), and numerous others.

Similar positive signalling came from builders and property developers, but mostly in relationship to domestic markets, not if the main course is the US.

This discrepancy explains the opposing share price responses between Stockland ((SGP)) and Wagners Holding Co ((WGN)) on one hand and James Hardie ((JHX)), Reece ((REH)) and Reliance Worldwide ((RWC)) on the opposing side.

Apart from US headwinds, which also hit several companies in the healthcare sector, persistent sluggish dynamics in Victoria and in New Zealand continued to feature.

Contrary to share prices pushing the ASX200 to a new all-time record high above 9000 towards the end of the season, downgrades to earnings forecasts have dominated the month.

Consensus forecasts placed the average EPS at minus -1.8% pre-August and by the end of the month that number has shrunk to -3%.

All in all, August results have shaved off around -1% from FY26 forecasts too, with consensus now projecting 4.5% growth ahead for the new financial year.

But share prices generally and the major local index specifically moved in the other direction; up. The end outcome is the Australian share market’s forward-looking Price-Earnings (PE) ratio ended August at 19.9x, a multiple usually reserved for US equities.

No double-guessing why market watchers and commentators are feeling increasingly uncomfortable with the market’s relentless uptrend. Where have all the earnings gone? Arent they supposed to underpin this next bull market?

In Anticipation Of Better Times Ahead

Negative, suggest strategists at Macquarie, share market momentum is being fed more by general liquidity and by the prospect of more rate cuts.

Certainly, such factors are supportive too, as does the fact US indices keep setting fresh new record upon new record this year.

I’d also add the importance of portfolio positioning and of general sentiment.

Previously, the share market’s uptrend had predominantly been the prerogative of large caps and of Growth stocks, AI-related or otherwise.

The Small Ordinaries, for instance, had underperformed the ASX100 for four years in a row (2021-24) and investors clearly were fed up with the narrow basket of continuous Winners and looking for a broader base to take this market to the next level.

Viewed from this angle, August delivered in spades. The Small Ordinaries surged 8.18% during the month (total return 8.41%), leaving all other indices at a significant distance.

Over three months this index is up 11.84%, over six months it’s up 15.13% and over twelve months the gain has now extended to 20.15% (23.40% including dividends).

Small caps are back in vogue. And so are many of the stocks that could not attract much attention post-2022.

How better to illustrate this reversal in market momentum than through the 60% rally for shares in IDP Education ((IEL))? Since late 2021 that share price had only known one direction, and it was down.

Financials and Materials performed well, with gold miners in particular stealing the show, but lithium’s comeback didn’t falter either.

As portfolios rotated, somebody had to lose out. No surprise, given the previous lead in the narrow based uptrend, Technology became August’s main victim, followed by Healthcare and Staples.

Shares in Vault Minerals ((VAU)) are up by more than 40%, closely followed by gains in 29Metals ((29M)).

It wasn’t all black and white though and individual performances did give companies the opportunity to sail against the broader trends.

Note the big jump in the share price of NextDC ((NXT)), for example, but also the sell-off in response to CommBank’s ((CBA)) result and to Bank of Queensland’s ((BOQ)) market update, while numerous turnarounds and promises failed to materialise, as is usually the case.

This season’s big disappointments included AGL Energy ((AGL)), Amcor ((AMC)), CSL ((CSL)), James Hardie ((JHX)) and Woolworths Group ((WOW)), but also Audinate Group ((AD8)), Avita Medical ((AVH)), Domino’s Pizza ((DMP)), Ebos Group ((EBO)), EVT Ltd ((EVT)), HMC Capital ((HMC)) and DigiCo Infrastructure REIT ((DGT)), IPH Ltd ((IPH)),  Ramsay Health Care ((RHC)), ReadyTech Holdings ((RDY)), and Sonic Healthcare ((SHL)).

Note the prominent presence of healthcare companies in that list which also saw the likes of Cochlear ((COH)), Medical Developments International ((MVP)), Micro-X ((MX1)), Monash IVF ((MVF)), Paragon Care ((PGC)) and Telix Pharmaceuticals ((TLX)) release disappointing updates.

It remains remarkable how what once was Australia’s super-duper cannot fail, consistently outperforming sector is today but a shadow of its former self, unable to string two halves together of strong (out)performances.

Shareholders in ResMed ((RMD)) and Pro Medicus ((PME)) must be thinking they’ve won the lottery.

More Misses, But Who Cares?

One popular method to judge the season (apart from observing share price moves) is by measuring whether financial results ‘beat’ or ‘missed’ against forecasts.

On this simple benchmark both UBS and Morgan Stanley report the August balance is about 33% for each, which is not great as there should be more ‘beats’ — and usually that is the case.

FNArena’s Monitor not only measures a larger number of companies (we combine eight brokers monitored daily) but we also take a broader view, including outlook guidance and other metrics outside of earnings, profits or dividends that equally drive analysts’ forecasts and forward-looking valuations.

On this broader methodology, more appposite and accurate we feel, this year’s August results season has been the worst since 2013, when FNArena’s Monitor started.

Out of 373 results, only 78 or circa 21% has genuinely outperformed forecasts and forced analysts to increase forecasts and valuations.

Never in the twelve years of history of the Monitor has any percentage of ‘beats’ come out this low, and against low expectations too (note the -1.8% forecast beforehand).

The previous low was 24% registered in August 2019, when the domestic economy was almost literally grasping at straws ahead of banks and cyclicals reducing their dividend payments to shareholders.

The key difference between today and back then, of course, is the RBA has cut the cash rate three times this year, and there’s general anticipation of at least one more cut forthcoming.

One of the notable observations during August results was how many references were made to RBA rate cuts when predicting better operational momentum ahead for companies ranging from Eagers Automotive ((APE)), to Coles Group ((COL)), to Stockland ((SGP)), Accent Group ((AX1)), and others.

On FNArena’s assessment, a little less than half of all results merely met expectations, with 110 results or 29.5% disappointing. The latter percentage is high, but not extraordinary.

The over-ruling impression is corporate Australia is still very much limping forward, but greenshoots are emerging and investors have been prepared to take a leap in anticipation of better conditions ahead by 2026.

Greenshoots Emerging

Those greenshoots included a pick-up in consumer spending, mostly apparent through trading updates from the first seven weeks into FY26, and improving momentum in local building activity.

Rising costs remain in many cases the all-important threat on the horizon.

In terms of re-ratings and de-ratings, as well as downgrades and upgrades to forecasts, the net outcome has still been slightly more negative than positive, reports UBS.

FNArena’s monitoring too has noted significantly more downgrades in ratings throughout the month (81 downgrades versus 48 upgrades); this is probably equally in response to a market setting fresh all-time record highs and share prices often rallying on ‘good enough’ results.

Real estate and Financials are the sectors that enjoyed most of the positive adjustments, even though discretionary retailers caught everyone’s eye in the month.

This was thanks to smaller caps including Zip Co ((ZIP)), Australian Finance Group ((AFG)) and Bendigo and Adelaide Bank ((BEN)) forcing analysts forecasts higher, as did the likes of Centuria Capital Group ((CNI)), Charter Hall ((CHC)), and Cromwell Property Group ((CMW)).

The Energy and Materials sectors saw most market updates followed up with forecast downgrades, though this may not necessarily been apparent from simply watching share prices.

Small Cap industrials excelled in both directions with companies like Redox ((RDX)) and Kelsian Group ((KLS)) joining contract services providers on the positive side, while deep cuts were reserved for the likes of Johns Lyng ((JLG)), Reece, Reliance Worldwide, and Aurizon Holdings ((AZJ)).

I intend to dig deeper into results for individual companies in Thursday’s Part Two, Rudi’s View update.

Early trading in September suggests the market’s mindset remains set on portfolio rotation into the New Winners (i.e. yesteryear’s laggards of resources and smaller caps).

Historically, September and October can be tricky months to navigate, but with so many changes occurring and plenty of potential catalysts either way, it’s probably not too much of a luxury to hold some of the portfolio in cash.

To be followed up on Thursday.

FNArena’s Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/

Do note: paying subscribers have access to all reviews, stats and data from all previous seasons going back to August 2013.

Review All-Weather Model Portfolio

The financial year ending on June 30th 2025 featured the return of Donald Trump in the White House and of extreme market volatility.

The second half of the year also saw doubt creeping into general sentiment towards AI and demand for data centres.

All in all, a gain of 13.85% (pre-fees) for the twelve months is not something to be unhappy about, right?

FY25 review of the All-Weather Model Portfolio: https://www.fnarena.com/index.php/download-article/?n=4B38C0EF-A173-8CE6-736A7AFC7B19FC49

Model Portfolios, Best Buys & Conviction Calls

This section appears from now on every Thursday morning in a separate update on the website. See Rudi’s Views for the archive going back to 2006 (not a typo).

FNArena Subscription

A subscription to FNArena (6 or 12 months) comes with an archive of Special Reports (21 since 2006); examples below.

(This story was written on Tuesday, 2nd September 2025. It was published on the day in the form of an email to paying subscribers, and again on Wednesday as a story on the website).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena’s see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: contact us via the direct messaging system on the website).

Click to view our Glossary of Financial Terms