Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 600

An odd and wild ASX reporting season

Reporting season can often be a messy affair. When you overlay an economic turning point that changes the importance of ‘what has been’ versus ‘what is to come’ and add a fragile global political backdrop, that by itself is causing significant volatility across financial assets, and it becomes even harder than normal to navigate.

Results were within expectations

In isolation, the reporting season has been pretty much as expected. Expectations were relatively conservative coming into these results which fit with a patchy economic growth backdrop where there were clear areas of strength (the consumer) offset by areas of weakness (housing, construction, mining). Margins had been under pressure from elevated input costs and wage pressures, but it looked like we had already passed the worse and the market was looking for confirmation of this. The A$ was expected to provide some solid translation gains, but a desynchronised global growth backdrop meant that the tailwind from international earnings was going to be a mixed.

Figure 1: EPS revisions during reporting season

Source: Hasan Tevfik, MST Marquee

Figure 2: Post result revisions gave been more negative than usual

Source: Hasan Tevfik, MST Marquee

If it is possible to generalise, we would say that revenue lines were slightly better than expected with price over volume the culprit. It was margins that appeared to disappoint with costs coming in higher than anticipated albeit not dramatically so. We did not see much evidence of a broad increase in interest costs, or financial engineering (which tends to happen when the quality of results weakens). Small stocks tended to disappoint a little more than large caps, but post result revisions were slight better. All in all, another messy affair but there was enough positive commentary and post result upgrades to give us comfort that we have past the nadir for corporate earnings.

Share price reactions were all over the place

The real challenge was in adapting to how the market priced companies that reported results. Traditionally a bad result would be treated negatively and a good result positively. What’s more, there would usually be legs to these trades – in other words longevity to short term relative price performance. But, when the economic and profit cycle is turning, the willingness to look through a bad result on the basis that the next one will be better came through loud and clear. This meant that for a lot of stocks, not matter how bad the result, if the outlook was better, they were often bid up strongly (particularly for stocks where there was high short interest).

On the other hand, it didn’t matter how good the results were for stocks that had performed well in recent times and were trading on elevated multiples versus their peer group because at turning points, there is a rotation out of expensive stocks and into cheap stocks, supported by the notion that the next set of results will be better than the last. This was a sharp case of valuation convergence which is the exact opposite of valuation dispersion that had opened up as the economic cycle weakened and the strong (quality) was a safe haven.

Figure 3: The shares prices of leading stocks have suffered most

Source: Chris Nicol, Morgan Stanley

Let’s look at a few examples. Guzman & Gomez (ASX: GYG) reported an incredible strong result with even stronger trading update in its Australia division which bucked the trend of the weaker fast-food category. But, instead of great share price print, the share price was down 14% on the day. Pinnacle (ASX: PNI) is another example of a stronger result with poor share price performance, almost 10% since the result.

On the other hand, poorer results such as Audinate Group (ASX: AD8) has had the opposite effect. The company reported continued weakness with current hardware sales, and probably will continue to be borderline cash flow breakeven, and yet the share price was up more than 38% at one stage. Domino (ASX: DMP) is another interesting example that when the company first updated its earnings ahead of the result, its share price rallied over 20% and caused the short seller community grief, then when the result was finally reported two weeks later, management couldn’t even put the whole story together and the share price has subsequently lost most, if not all of its gains.

Banks are an interesting one to touch on. After stellar performance in 2024 exceeding all expectations, we finally saw some weakness during this reporting season except for Commbank (ASX: CBA), as most banks share prices fell closer to double digits, with regional bank Bendigo really surprised on the downside. This weakness did not last very long, and the entire sector rebounded nicely at the expense of the tech and consumer sectors.

The most interesting reporting season in my career

This is probably the most interesting reporting season in my 20 odd years of looking at the market, as share price meaningfully diverged from earnings and prospects. It’s reflected all the greed and fear of investor behaviour in short bursts.

Turning points take time to become embedded in economic data and investor expectations. And before they do, sentiment can oscillate wildly. This means a strong stomach is needed until the recovery becomes entrenched and price action less volatile. But the market is not the economy and there are substantial tailwinds that should drive strong equity performance throughout 2025. At Ten Cap, we think bullish signs are there even if they are not yet fully transparent.

 

Jun Bei Liu is a co-Founder and Lead Portfolio Manager at Ten Cap. Jun Bei is also a popular media personality and a highly sought after public speaker about her investment views. This information is intended for general use only. The information presented does not take into account the investment objectives, financial situation or advisory needs of any particular person.

 

RELATED ARTICLES

The early signals for August company earnings

Dividends, disruption and star performers in FY21 wrap

It’s the large stocks driving fund misery

banner

Most viewed in recent weeks

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Latest Updates

Investment strategies

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Investment strategies

Don't let Trump derail your wealth creation plans

If you want to build wealth over the long-term, trying to guess the stock market's next move is generally a bad idea. In a month where this might be more tempting than ever, here is what you should focus on instead.

Economics

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Investment strategies

Will China's EV boom end in tears?

China's EV dominance is reshaping global auto markets - but with soaring tariffs, overcapacity, and rising scrutiny, the industry’s meteoric rise may face a turbulent road ahead. Can China maintain its lead - or will it stall?

Investment strategies

REITs: a haven in a Trumpian world?

Equity markets have been lashed by Trump's tariff policies, yet REITs have outperformed. Not only are they largely unaffected by tariffs, but they offer a unique combination of growth, sound fundamentals, and value.

Shares

Why Europe is back on the global investor map

European equities are surging ahead of the U.S this year, driven by strong earnings, undervaluation, and fiscal stimulus. With quality founder-led firms and a strengthening Euro, Europe may be the next global investment hotspot.

Chalmers' disingenuous budget claims

The Treasurer often touts a $207 billion improvement in Australia's financial position. A deeper look at the numbers reveals something less impressive, caused far more by commodity price surprises than policy.

Fixed interest

Duration: Friend or foe in a defensive allocation?

Duration is back. After years in the doghouse, shifting markets and higher yields are restoring its role as a reliable diversifier and income source - offering defensive strength in today’s uncertain environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.