High expectations: Tourists enjoying the view at the Sydney Opera House. Australia’s historically high equity valuations ramped up pressure on companies to deliver in-line results and upbeat prospects. — AFP
SYDNEY: Earnings expectations for Australia’s biggest companies are slipping after a bleak reporting season that jolted shares.
The drop in forward consensus earnings estimates for the benchmark S&P/ASX 200 Index accelerated during August’s results period, and is now down 2.5% since the start of the year, according to data compiled by Bloomberg.
That makes it an outlier in the Asia-Pacific region, where overall profit projections are rising.
Australia’s historically high equity valuations ramped up pressure on companies to deliver in-line results and upbeat outlooks, with several stocks suffering big falls after disappointing earnings.
While the benchmark capped a 2.6% gain in August, it underperformed the regional stock gauge.
The outsized share moves reflect “the combination of rising passive ownership, the increased prevalence of quant-driven trading strategies and stale earnings estimates,” UBS Group AG strategists led by Richard Schellbach wrote in a note.
Still, some companies benefited from an improving domestic economic backdrop and interest-rate cuts.
Earnings growth for the broader market could return in the next two or three quarters as better conditions flow through to more firms, according to Anna Wu, a cross-asset investment strategist at VanEck.
A brighter economic picture and stronger consumer appetite boosted retailing stocks.
A sub-gauge of consumer discretionary companies rose 7.4% in August to mark its best month since July 2024.
Shares of home goods company Harvey Norman Holdings Ltd soared the most since 2009 after reporting a profit beat, while online furniture retailer Temple & Webster Group Ltd jumped to a record as its full-year net income surged.
Analysts also increased earnings estimates for retailers including Harvey Norman, JB Hi-Fi Ltd and Breville Group Ltd following their results.
Real estate shares also advanced as several companies flagged increasing demand as the Reserve Bank lowers interest rates.
A number of firms in the sector “highlighted a discernible improvement in trading activity since June into August,” said Hamish Tadgell, portfolio manager at SG Hiscock & Co.
Stockland, Mirvac Group and Charter Hall Group all highlighted increased property inquiries, with rate cuts and signs of stabilising property values in their results, he pointed out.
By contrast, companies with a large exposure to the United States housing market performed poorly during the reporting season.
Building materials maker James Hardie Industries Plc shocked the market with weak sales in its key North American division and a soft US property outlook, triggering the stock’s worst day in five decades.
“Global companies like James Hardie are still very much impacted by what’s happening in the United States, and that is where we’ve been reducing our positions over the last few months,” said Elfreda Jonker, client portfolio manager at Alphinity Investment Management.
Reliance Worldwide Corp and Reece Ltd shares also suffered steep losses after flagging US housing challenges.
CSL Ltd, one of the heaviest-weighted stocks on Australia’s benchmark, endured one of the most notable post-results slumps.
The stock sank the most on record after revenue at the biotech giant’s main Behring unit missed estimates.
The company’s plans to spin off its Seqirus vaccine business and cut costs by around US$500mil a year also drew a mixed reaction from investors.
“We have lost conviction in both management and CSL’s medium-term earnings growth trajectory,” Wilsons Advisory strategists including Greg Burke wrote in an Aug 27 note. — Bloomberg
