Rudi’s View: A Season Of Large Cap Winners

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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Prior to war breaking out in the Middle East, corporate results in February delivered plenty of positive news.

By Rudi Filapek-Vandyck, Editor

A Season Of Large Cap Winners

By Rudi Filapek-Vandyck, Editor

February 2026 was hands down the best corporate results season in Australia since the post covid-peak in 2022.

It has inspired already positive-minded UBS strategist Richard Schellbach to lift his year-end target for the ASX200 to 9400 from 8900 prior.

Many key statistics for the season support such positive sentiment; the number of result ‘beats’ outnumbered ‘misses’ by two-to-one, while guidance upgrades outnumbered downgrades by three-to-one. Aggregate EPS growth for the ASX200 has risen to 13.6% from 11.3% at the end of January.

Six months ago those forecasts stood at 3%. The last time aggregate EPS growth had been positive in Australia was mid-2022. All three subsequent fiscal years ended with a net negative growth outcome.

Large Cap Winners Dominate

Australia’s key index, the ASX200, gained 3.7% throughout February, carried by mostly positive results from banks, led by CommBank ((CBA)), and by the broader mining sector, led by BHP Group ((BHP)). Both sector leaders –and local market heavyweights– saw their forecast-beating performances rewarded with rallying share prices.

February’s most obvious milestone was a fresh all-time record high, set at 9198.60, just before US and Israeli bombs landed on Tehran, on the final day of the month. Underneath that achievement is the observation the combined index weight of CommBank and BHP has never been higher than it is today (20%-plus).

That will make some investors a bit more wary.

Equally worth highlighting: the season’s key metrics have been largely carried by larger cap companies, including those two market heavyweights. FNArena’s Corporate Results Monitor had been suggesting a near 40% in positive surprises (result plus guidance) throughout most of the month, but as the final week is mostly populated with smaller cap companies, that percentage fell to 35% by month’s end.

That observation is backed up by the Monitor’s statistics for respectively the ASX50 and ASX200. The first index (all large caps) has generated 44% positive surprises and 35% negative outcomes. For the much broader ASX200 the corresponding numbers are 43.5% ‘beats’ and 29.5% ‘misses’.

As stated, for the 361 companies combined (more than double the 163 members of the ASX200 that reported financials in February) the Monitor assessed 35% as a ‘beat’, 31% as a ‘miss’ and the remaining 34% as in line.

For good measure: that 35% is still the best outcome since 2022 and historically in line with the better February result seasons, but that 31% in disappointments is relatively too high and probably indicative of the fact today’s polarised economic conditions are far from ideal for smaller sized businesses.

Analysts at Macquarie have made a similar observation in that ASX100 Industrials have posted net ‘beats’ of 23% in combination with a very low rate of ‘misses’ (only 7%). In contrast, smaller cap industrials only ‘beat’ by a net 8% and their ‘misses’ ran up to 21%.

Little surprise, on Macquarie’s number crunching, the return spread in February between large and smaller cap industrials measured 2.7% in favour of the larger sized cohort. Think Telstra ((TLS)), AGL Energy ((AGL)) and Woolworths Group ((WOW)) versus Reliance Worldwide ((REH)), Inghams Group ((ING)) and Aussie Broadband ((ABB)) (in a broad sense).

Defensives & AI

While it seems straightforward to assume February belonged to financials, energy and the mining sector –with large positive contributions to earnings forecast upgrades and upside for the index– the title of absolute top performing section of the market goes to local defensives.

As Macquarie points out, defensives contributed with a net positive EPS surprise of 10%, triggering 6% in net upgrades to EPS forecasts and the largest sector outperformance in share price rallies. Given defensives have equally been in strong demand globally, it is more than likely other factors have played a role as well.

Think general fears about global liquidity and valuations, not to mention the concerns about AI threats and disruption from which most defensives (at least at this stage) remain insulated.

Now that we’ve mentioned the “magic word”, both UBS and Macquarie highlight February was the first season during which AI has exerted itself as a tangible and clearly distinguishable factor. In short: companies have started to communicate their first AI successes, and they have been rewarded for it.

On Macquarie’s assessment, companies building AI generated the most upside surprises (23%) and the most upgrades (27%) during the season. Such companies have outperformed those companies that are AI disrupted by circa 20% over the month.

Macquarie’s conclusion: “AI passed a tipping point during results. AI Exposure is now a key macro factor that will drive earnings expectations and valuations.”

UBS wasn’t among AI enthusiasts up until last month but now also concludes the Rubicon has been crossed as household names including CommBank, Telstra, Breville Group ((BRG)), Seek ((SEK)), Superloop ((SLC)), WiseTech Global ((WTC)), Woolworths, Coles Group ((COL)) and IDP Education ((IEL)) have started to highlight quantifiable impacts from AI on the productivity and profitability of their businesses.

Concludes UBS: “How this ultimately plays out we do not know, but the period of intrigue, questioning, and related share price volatility, is set to continue.”

Plenty Of Disappointments

As per always, there are a few candidates, but the title of biggest disappointment of the February results season is reserved for autoparts distributor Bapcor ((BAP)).

Years of continuous underperformance and management failure to straighten the ship culminated last week in a capital raising that will significantly dilute remaining shareholders as the cap raise will almost double total capital in the business (up 98%).

The most logical way to avoid such instant capital destruction is, of course, by taking up more equity –i.e. allocating more funds into a failed strategy– and most institutional investors will do exactly that. But more money doesn’t mean this busines has now left all bad news behind it.

Citi analysts responded as follows:

“While Bapcor should be a relatively simple business and the industry structure is reasonable, from our perspective after three false starts from different CEOs trying to execute a Bapcor turnaround, we think it is prudent to wait to see some sustained signs of traction prior to recommending that investors buy the stock.”

Citi has downgraded to Sell.

It does act as a warning signal to investors there’s no natural limit to how bad things can get when a company loses its ability to perform constructively. Bapcor has been in struggle street for years and no doubt its “cheap” looking share price would have attracted the attention of at least a few bargain hunters.

When this business listed as Burson Group in late April 2014 things looked a lot different back then. As Australia’s premier multi-channel aftermarket distributor of automotive replacement parts and workshop equipment, Burson seemed destined for an exciting future.

The first seven years as an ASX-listed public company seemed to deliver on that promise, with the share price peaking above $8 in 2021. On Friday, coming out of their trading halt, the shares plunged by nearly -30% to 87c. On Monday, more selling followed, dragging down the share price to 77c.

Ord Minnett had already downgraded its price target to 75c.

It’s not every day investors get to witness a near -90% destruction in shareholder wealth in less than six years. Slater & Gordon comes to mind, but also Freedom Foods Group, nowadays trading as Noumi ((NOU)). There are, of course, plenty of examples of companies that went belly up, which still is a lot worse an outcome for shareholders.

It’s probably difficult to imagine today, but Bapcor once featured in my personal research as a potential All-Weather Performer. My interest was piqued because demand for car parts is largely non-discretionary and price-insensitive; if your car breaks down, you want to have it fixed — presto.

A lot of that demand is covered under insurance too. As the local market leader, you’d expect Burson group (Bapcor) to exhibit all the characteristics that have made companies like ResMed ((RMD)) and Wesfarmers ((WES)) such a pleasure to own throughout the past two decades or so.

At first that same scenario certainly appeared to unfold with Bapcor shares a positive contributor to the FNArena-Vested Equities All-Weather Model Portfolio, until resilience, reliability and dependable performance went out the window. Of course, things had already started to change with the advent of electrical vehicles, which require almost no parts, but this by no means explains the pain shareholders are experiencing today.

Super Retail’s ((SUL)) Super Cheap Auto is competing in the same space and, judging by its interim report from last week, nowhere near in the same quagmire. What Bapcor’s example shows investors is that market leadership, industry dynamics and track records from the past are only part of a company’s story.

Successful business models can still stumble or, as has happened in the case of Bapcor, they can change their core qualities altogether. Sometimes bad management takes hold. Sometimes external dynamics force change. Sometimes it’s not quite clear what exactly is responsible for the changes that occurred.

Reporting Seasons’ Red Flag

Years ago, when I queried what exactly had gone wrong with iSentia, yet another sad story on the ASX, I noticed this company had build up a track record of mostly disappointing during results seasons. There was always something. Sometimes of a smaller nature, later on disappointments became much larger in nature.

I concluded back then, as I do today, such repeated disappointments are a red flag that should be on investors’ radar.

Simply put: a company in great shape is most likely in a position to outperform, rather than disappoint. A company for whom the tide is turning is more likely to underperform and resort to excuses for why this or that is not quite up to scratch.

Such business momentum fluctuates, of course, and one ‘beat’ or ‘miss’ by no means tells the full longer-term story. That’s not what I am referring to. When disappointments follow in succession, that’s when risk management alarm bells should be ringing and tougher questions need to be asked.

One of the most prominent disappointers on the ASX is CSL ((CSL)), for whom the tide most definitely has turned. Gone are the days of the ever shining halo that hung over Australia’s most successful biotech and that made CSL temporarily the largest constituent of the ASX200 back in 2020.

Since then, things have only gone backwards, as also illustrated by a share price that has more than halved since 2024. A lot has happened and impacted on CSL over the past five years, but there’s one red flag that should have attracted my attention much earlier; those repeated disappointments when releasing financial market updates.

I think it’s only fair to state CSL today is but a shadow of its former self. And it remains anybody’s guess when exactly this business will or even can rediscover its former strength and market leadership.

I have decided to remove CSL from  my selected lists of High Quality businesses on the ASX. It had been branded ‘with question marks’ for a while, to indicate risks had increased and confidence had been eroded, but time has come to say goodbye (arguably long overdue).

Ramsay Health Care ((RHC)) too once was part of the selection, until it no longer deserved to be. Cochlear ((COH)), also in the healthcare sector and still included in my research, has now equally built up a track record of repeated and successive ‘misses’ during results seasons. Consider it a red flag.

Strugglers Turning Into Winners

Against the background of all of the above, February results have put many of long-time struggling businesses in the limelight.

Some have finally broken their negative operational trend. Think Aurizon Holdings ((AZJ)), but also Baby Bunting ((BBN)), Orora ((ORA)), Pexa Group ((PXA)), Sonic Healthcare ((SHL)), and Woolworths.

The challenge for investors is to not get hoodwinked by one lucky strike and separate out those businesses that are genuinely turning around and worth holding on to. The All-Weather Porfolio owns Woolworths shares and is delighted things have finally picked up. It has been a long wait and our patience relied on the strong underlying fundamentals that support supermarket operators in this country.

Others have stuck to the familiar script and asked for more patience from shareholders.

Think Inghams Group and Lendlease ((LLC)), but also ARN Media ((A1N)), Domino’s Pizza ((DMP)), Endeavour Group ((EDV)), G8 Education ((GEM)), Healius ((HLS)), Seek ((SEK)), Sky City Entertainment ((SKC)), Step One Clothing ((STP)), and Treasury Wine Estates ((TWE)).

My style of investing is not to rummage through cheap-looking, underpriced, weak and vulnerable businesses in the hope that one day some positive development puts a rocket underneath the share price. Every time one of these names puts in a firm rally I feel like congratulating those on the shareholders registry, but I never feel jealous as I know of plenty examples that cause heart- and headaches for much longer.

Inghams Group shares fell by yet another -15% in February, and so did shares in Treasury Wine Estates. And those are but two examples that spring to mind.

Volatility & Retailers

As anticipated, volatility in share prices was yet again well above observations and trends from before last year.

Consider on the day when WiseTech Global’s market update inspired a double-digit percentage rally in its share price, shares in supermarket operator Woolworths rallied even harder.

Yet again, for mega-punishments in case of major disappointment, the focus was firmly on smaller cap stocks. Bapcor shares lost nearly -60% in February. Shares in G8 Education lost -50%. For Botanix Pharmaceuticals ((BOT)), the drawdown was -49%.

With the RBA believed to deliver another one or two rate hikes this year, discretionary retailers, REITs and domestic cyclicals remain the subject of public debate.

For UBS, all seems honky dory, with the local economy on firm footing and retailers seemingly enjoying solid spending momentum.

UBS thinks those companies can withstand more rate hikes without too many dramas.

Over at Macquarie, however, the observation is many retailers have reported slowing momentum in February and that picture is unlikely to improve with higher rates.

Of course, all of the above has now quickly been superseded by the outbreak of war in the Middle East.

Looks like, for the short term at least, the general context for the Australian share market will remain fluid and unpredictable.

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

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(This story was written on Monday, 2nd March 2026. 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.

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