Rudi’s View: More Downgrades Are Coming

Array
(
    [0] => Array
        (
            [0] => ((MQG))
            [1] => ((GNC))
            [2] => ((NUF))
            [3] => ((ORI))
            [4] => ((XYZ))
            [5] => ((TNE))
            [6] => ((XRO))
            [7] => ((AMC))
            [8] => ((ALL))
            [9] => ((JHX))
            [10] => ((NWS))
            [11] => ((RMD))
            [12] => ((COH))
            [13] => ((EVT))
            [14] => ((GDG))
            [15] => ((HUB))
            [16] => ((IGO))
            [17] => ((CBA))
            [18] => ((BHP))
            [19] => ((RIO))
            [20] => ((WDS))
            [21] => ((APX))
            [22] => ((GSS))
            [23] => ((MCE))
            [24] => ((AHL))
            [25] => ((CAR))
            [26] => ((JDO))
            [27] => ((M7T))
            [28] => ((QOR))
            [29] => ((ANZ))
            [30] => ((BPT))
            [31] => ((FBU))
            [32] => ((GNC))
            [33] => ((ING))
            [34] => ((MGR))
            [35] => ((NHF))
            [36] => ((SEK))
            [37] => ((SGP))
            [38] => ((AIA))
            [39] => ((ALQ))
            [40] => ((APA))
            [41] => ((FMG))
            [42] => ((JHX))
            [43] => ((LNW))
            [44] => ((PNI))
            [45] => ((PXA))
            [46] => ((RHC))
            [47] => ((SIG))
            [48] => ((SLC))
            [49] => ((SNZ))
            [50] => ((TPG))
            [51] => ((VNT))
            [52] => ((CSL))
            [53] => ((SGP))
            [54] => ((TPW))
            [55] => ((FBU))
            [56] => ((SGP))
            [57] => ((SEK))
            [58] => ((JBH))
            [59] => ((LNW))
            [60] => ((EDV))
            [61] => ((MTS))
            [62] => ((CSL))
            [63] => ((AMC))
        )

    [1] => Array
        (
            [0] => MQG
            [1] => GNC
            [2] => NUF
            [3] => ORI
            [4] => XYZ
            [5] => TNE
            [6] => XRO
            [7] => AMC
            [8] => ALL
            [9] => JHX
            [10] => NWS
            [11] => RMD
            [12] => COH
            [13] => EVT
            [14] => GDG
            [15] => HUB
            [16] => IGO
            [17] => CBA
            [18] => BHP
            [19] => RIO
            [20] => WDS
            [21] => APX
            [22] => GSS
            [23] => MCE
            [24] => AHL
            [25] => CAR
            [26] => JDO
            [27] => M7T
            [28] => QOR
            [29] => ANZ
            [30] => BPT
            [31] => FBU
            [32] => GNC
            [33] => ING
            [34] => MGR
            [35] => NHF
            [36] => SEK
            [37] => SGP
            [38] => AIA
            [39] => ALQ
            [40] => APA
            [41] => FMG
            [42] => JHX
            [43] => LNW
            [44] => PNI
            [45] => PXA
            [46] => RHC
            [47] => SIG
            [48] => SLC
            [49] => SNZ
            [50] => TPG
            [51] => VNT
            [52] => CSL
            [53] => SGP
            [54] => TPW
            [55] => FBU
            [56] => SGP
            [57] => SEK
            [58] => JBH
            [59] => LNW
            [60] => EDV
            [61] => MTS
            [62] => CSL
            [63] => AMC
        )

)

This story features MACQUARIE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: MQG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Today's share market might be most at risk from earnings disappointments, not so much of over-valuation.

By Rudi Filapek-Vandyck, Editor

The current Grand Debate among international investors is: what might happen when the war in Iran and Lebanon is over and the Strait of Hormuz is re-opened?

Will it mark the end of US equities’ relative supremacy and allow the rest of the world to regain momentum?

Whatever your answer, there is as yet no imminent solution forthcoming, or so it seems, and even if the momentum pendulum were to swing back in favour of selected markets in Asia and Europe, I’m not convinced Australia will necessarily participate.

The relative difference in fundamental dynamics is once again expressed through corporate profits. The current quarterly result season in the US, albeit far from finished, is yet again outperforming against broad market forecasts and analysts’ projections for the periods ahead are rising.

In Australia, momentum is most definitely turning.

The consensus EPS growth forecast is still sitting on a very robust 12% for the twelve months ahead, but it’s all about utilities and energy producers benefiting from a big spike in the prices of oil and gas; elsewhere the trend is worsening.

And as analysts have only just started to re-align their modeling with the headwinds that are building, investors should expect more downgrades in the lead-up to the August results season.

Before then, we’ll see official updates on the out-of-cycle numbers by the banks, including Macquarie Group ((MQG)), the agricultural sector, such as GrainCorp ((GNC)), Nufarm ((NUF)) and Orica ((ORI)), local technology, including Block ((XYZ)), TechOne ((TNE)) and Xero ((XRO)), as well as a varied collection of household names, including Amcor ((AMC)), Aristocrat Leisure ((ALL)), James Hardie ((JHX)), News Corp ((NWS)) and ResMed ((RMD)).

A Negative Turn

Given the current trend, and the obvious headwinds building from a stronger AUD, the energy crisis and further RBA rate hikes, it’s probably best not to expect a similar positive stimulus from these market updates.

If anything, recent updates from the likes of Cochlear ((COH)), EVT Ltd ((EVT)), Generation Development ((GDG)), Hub24 ((HUB)), and IGO Ltd ((IGO)), among others, suggests the bias is to the downside.

Such is also the picture painted by the FNArena Corporate Results Monitor to date with result releases post February more likely to disappoint than beat expectations: https://fnarena.com/index.php/reporting_season/

Probably not surprising then, while US indices are posting fresh all-time record highs, the Australian market has pulled back by around -4.5% since late February with the ASX200 up less than 1% since January 1st and less than 3% for the running financial year (dividends not included).

Is The Market ‘Expensive’?

Some are arguing the local market remains way too expensive.

That sentiment seems to be backed up by the market’s forward-looking Price-Earnings (PE) multiple, which, at 17x times, remains more than one standard deviation about its long-term average of 14.9x.

But with CommBank ((CBA)) and BHP Group ((BHP)) representing nearly one fifth of the local index (respectively 11% and 8%), and banks and miners combined circa 40%, should one take that average still as representative for the market at large?

One quick look at FNArena’s consensus price targets shows both CBA and BHP shares are trading at a sizeable premium.

The same observation can be made for all of the Big Four banks, though not for Macquarie, as well as for Rio Tinto ((RIO)) and Woodside Energy ((WDS)), but not necessarily for their smaller cap peers.

There’s a second, equally valuable consideration. Yes, the long-term average PE ratio (going back decades) is currently well below today’s 17x, but over the past ten years that multiple has averaged 16x.

Why are we comparing today’s market with the twentieth century?

Maybe, if we choose the appropriate framework, and we correct for the enormous influence that stems from the heaviest index weights trading on premium valuations, the local market does not look that bloated or over-sized?

Below The Surface

As an aggregator of ratings, targets and earnings estimates from local stockbrokerages, FNArena has the quasi unique ability to compare today’s share prices, sold off and otherwise, to price targets and valuations set by those brokers.

While these forecasts and assessments should never be interpreted as set-in-stone –in particular not when downgrades are happening, with more to come– such broad comparison might give us a glimpse of how “cheap” or “dear” the local share market actually is.

A worst case scenario would present us with a market on premium multiples, with share prices at or above price targets (similar to CBA and BHP) and with forecasts in dire need of significant downgrades, but that’s not what our data are showing.

Out of a total of 524 ASX-listed companies, only 44 share prices are trading above target as per 27th April.

This small selection includes the likes of Appen ((APX)), Genetic Signatures ((GSS)), Matrix Composites & Engineering ((MCE)) and Adrad ((AHL)); above-average speculative plays that cannot possibly be held respresentative for the market as a whole.

Lithium and energy producers seem to have oversized representation, which is probably not unexpected, as do the banks.

On the other side, consider the following stats:

• 399 share prices are trading more than -10% below target
• 328 shares are trading more than -20% below target
• 256 shares are trading more than -30% below target
• 209 shares are trading more than -40% below target
• 163 shares are trading more than -50% below target

I won’t bore you with the rest, but does this look like a share market in dire need of a gigantic reset because average valuations have run too far ahead of what can possibly be achieved in terms of corporate earnings and margins?

Note: paying subscribers can download the Australian Super Stock Report from the website (updated monthly) and make these assessments themselves:

https://fnarena.com/index.php/analysis-data/super-stock-report/

Goes without saying, headwinds are building and the longer the Strait of Hormuz remains closed, the deeper the impact can possibly weigh on Australia’s outlook, as it does for economies throughout Europe and Asia, and probably for the global economy at large (ultimately the USA included).

But in many instances, share prices have already moved much further than what seems fair game, unless, of course, much worse scenarios are yet to unfold (always possible).

Risk Versus Opportunity

On Monday, as I am writing these sentences, Citi’s latest update on Car Group ((CAR)) arrives in the FNArena inbox.

Looks like a major reset to the downside with the broker’s price target reducing to $34.70 from an earlier $39.65. Big reduction, for sure, but the shares are trading below $26.

In similar fashion, Citi’s price target for EVT Ltd has fallen to $16.40. The shares are trading below $13.

Macquarie has lowered its price target for Judo Capital ((JDO)) to $1.85. The shares are at $1.40.

Morgans’ price target for Mach7 Technologies ((M7T)) has been reset from 76c to 44c. The shares are at 28c.

Bell Potter’s price target for Qoria ((QOR)) has decreased by -18% to 50c. The shares are at 26c.

These are simply examples I grabbed from Monday’s Australian Super Stock Report. These are not necessarily stocks on my radar or the ones I am looking to buy, but they are indicative of what is happening underneath the headlines of each day’s session.

This is also why, when I was asked on social media a few weeks ago to provide three examples of stocks representing ‘value’ in the local share market, my response was: Three? How about 300!

Better To Avoid The Downgrades

Whether any of today’s share prices represents great value for the months/year ahead will be –above anything else– determined by what comes out of each company in terms of earnings and dividends.

And as noted, the risks are currently real and tangible.

It’s better not to underestimate the damage that can be inflicted in case of a disappointing outlook or financial update.

The year past has provided investors with plenty of warnings, and it’s practically a given many more casualties will be hit over the weeks and months ahead.

The strategy team at Macquarie released a list of companies with “upside risk” to current earnings forecasts, as well as those at risk of disappointment.

Lets start with the “at risk” selection first:

• ANZ Bank ((ANZ))
• Beach Energy ((BPT))
• Fletcher Building ((FBU))
• GrainCorp ((GNC))
• Inghams Group ((ING))
• Mirvac Group ((MGR))
• nib Holdings ((NHF))
• Seek ((SEK))
• Stockland ((SGP))

On the positive side, for the following companies risk is seen skewed towards a positive surprise:

• Auckland International Airport ((AIA))
• ALS Ltd ((ALQ))
• APA Group ((APA))
• Fortescue ((FMG))
• James Hardie ((JHX))
• Light & Wonder ((LNW))
• Pinnacle Investment Management ((PNI))
• Pexa Group ((PXA))
• Ramsay Health Care ((RHC))
• Sigma Healthcare ((SIG))
• Superloop ((SLC))
• Summerset Group Holdings ((SNZ))
• TPG Telecom ((TPG))
• Ventia Services ((VNT))

Macquarie strategists have equally updated their thoughts on the so-called ‘second half club‘; companies that are dependent on an outsized performance in H2 to achieve guidance and please the market.

Prior to Cochlear’s profit warning, this company had been deemed at risk of disappointment.

Others considered cum potential disappointment include:

• CSL ((CSL))
• Stockland ((SGP))
• Temple & Webster ((TPW))
• Fletcher Building ((FBU))

From a Quant perspective, stocks with the weakest share price momentum in combination with recent downgrades to analysts’ forecasts are equally seen as carrying above-average risk:

• Stockland ((SGP))
• Seek ((SEK))
• JB Hi-Fi ((JBH))
• Light & Wonder ((LNW))
• Endeavour Group ((EDV))
• Metcash ((MTS))
• CSL ((CSL))
• Amcor ((AMC))

Of course, these are all but risk-assessments by one team of strategists, but all in all, it’s probably best to remain more cautious this time around, as more downgrades are forthcoming and it’s anyone’s guess as to how deep they will cut into today’s valuation and/or share price.

In the same vein, and not taking into account much worse scenarios than anyone of us is thinking about right now, outside of banks, energy and sturdy defensives, the above suggests the Australian bourse has turned into a large, longer-term value proposition, including the Quality Growth and Technology stocks that have been de-rated in a fashion seldom witnessed outside of deep recessions, bond markets resetting or bubbles bursting.

Note: the All Technology Index is the best performer in April locally (and by far).

FNArena Talks

FNArena’s Danielle Ecuyer has managed to interview two of international legends inside the global investment community these past number of weeks.

Take your time to sit down and enjoy the wealth of experience and insights embedded in both interviews available on our website and YouTube channel.

George Noble: 

https://fnarena.com/index.php/fnarena-talks/2026/04/22/investing-for-the-future-through-the-prism-of-experience/

Michael Howell: 

https://fnarena.com/index.php/fnarena-talks/2026/03/26/global-debt-liquidity-refinancing/

FNArena Subscription

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