Weekly Wrap 21 February: The standouts of Reporting Season week 3

Transcript: Weekly Wrap 21 February

So far this reporting season as we hit the tail end of the important results period, 84 companies have reported with 30 beating expectations, 27 meeting expectations and 27 missing expectations. A large number of the misses have been in the energy space amid volatility in the industry over the 1^st half, while gold miners and niche retailers have been key sectors that have topped expectations.

Australian corporate conglomerate Wesfarmers (ASXWES) posted a slight beat on an earnings front and a solid overall trading update for 1H25 despite only posting single digit earnings growth for its key retail names. For the first half, Wesfarmers reported group revenue rose 3.6% to $23.49bn, EBIT rose 4.7% to $2.3bn, NPAT climbed 2.9% to $1.47bn and the company’s fully franked interim dividend was declared at 95cps. From a segment perspective, Wesfarmers’ results were driven by WesCEF, the industry leading chemicals, energy and fertilisers business which reported a single digit earnings growth of 9.5% to $1.2bn, while the company’s Kmart brand continues to excel with sales growth of 2% to $6.2bn.

Elsewhere in the retail space, investors had mixed reactions to Super Retail Group and Universal Stores yesterday.

Universal Stores (ASX:UNI), which has garnered a buy rating from Bell Potter’s analysts, posted excellent results yesterday, further adding to the story of strength among niche retailers in H1, with 16.1% sales growth on PCP to $183.5m, underlying EBIT up 14.9% on PCP to $35.4m, gross margin expansion of 90bps despite continued discounting from peers, and declared a 33% rise in the interim dividend to 22cps. Universal Stores target the younger demographic which have little to no cost-of-living pressures and spend their weekly wage on fashion and the latest trends, like at the Universal Store.

On the other hand, Super retail group (ASX:SUL) had margin contraction in the first half suggesting inflationary pressures ate into profits. Super Retail Group also posted a rise of 8% in inventory to $69m, significantly more than the $28.5m inventory posted by Universal stores. Inventory is a key metric investors should assess for any retailer as a high inventory level leads to higher promotional activity to move the stock or write the inventory off as a cost to the company.

Toll road operator Transurban (ASX:TCL) impressed investors with a solid first half including slightly paying down of debt, of which toll road operators are known for holding a high level of, a 9.4% rise in operating EBITDA thanks to a return to office policy across most states, and the company reaffirmed distribution guidance for 65cps full year dividend and declared a 32cps dividend for the interim payout.

On a broad level, let’s assess the key areas we are seeing trends arise this reporting period.

Dividends have been a key focus this February with a mixed bag of changes to key corporate payouts. In the materials space, a downgrade in dividends paid was expected this reporting season and saw BHP (ASX:BHP) reduce its dividend by 30% while Rio (ASX:RIO) reduced its final dividend to US$2.25/share taking total year dividends to US$4.02 for the year which is the lowest level since 2017. Elsewhere, A2M (ASX:A2M) introduced its inaugural dividend of 8.5 NZ cps due to higher sales into China and the US. Sonic Healthcare and Wesfarmers also surprised the market with dividend increases by 2.3% and 4.4% respectively. Telstra Group (ASX:TLS) also raised its interim dividend with a payout of 5.6% to 9.5cps amid a strong profit lift in 1H25 that beat analysts’ expectations.

As for the outlook for 2H25 so far, we have seen a broad picture painted for key sectors to continue facing inflation cost pressures like utilities companies, while broadly, retailers are expecting subdued demand to continue into the second half. Materials companies on the other hand are expecting a rebound in key commodity prices thanks to increasing demand from China. Expansion in the datacentre/AI space is expected to continue well into FY26, especially after Goodman Group (ASX:GMG) announced a $4bn capital raise in results out this week to turbocharge its datacentre portfolio. And the financials sector has come under pressure amid soaring valuations, net interest margin peaking and on the back of the RBA entering the cut part of the rate cycle.

Locally from Monday the ASX200 posted a sharp 2.72% loss as a 6.3% drop for the financials sector weighed on market gains. The sell-off in financial stocks is primarily due to investors seeing value elsewhere in the market on the back of the RBA’s rate cut announcement which reduces earnings growth potential for the banks.

The winning stocks on the ASX200 this week were led by Megaport (ASX:MP1) soaring almost 29%, A2 Milk Company (ASX:A2M) rocketing 26% and Audinate Group (ASX:AD8) rising 17.81%.

On the losing end, Mineral Resources (ASX:MIN) tanked almost 21%, while Bendigo and Adelaide Bank (ASX:BEN) fell 18.18%.

On the broader market front, the All Ords fell 2.53% over the 4-trading days as Winsome Resources (ASX:WR1) fell 24.71% while Redox (ASX:RDX) ended the week down 20.88%.

The most traded stocks by Bell Direct clients from Monday to Thursday were Fortescue (ASX:FMG), PM Capital Global Opportunities Fund (ASX:PGF), and CSL (ASX:CSL). Clients also bought into Woodside (ASX:WDS), Westpac (ASX:WBC), NAB (ASX:NAB), CBA (ASX:CBA), Pilbara Minerals (ASX:PLS) and Pro Medicus (ASX:PME) while taking profits from Charter Hall Social Infrastructure REIT (ASX:CQE).

The most traded ETFs by our clients this week were led by Vanguard Australian Shares Index ETF, Vanguard Australian Shares High Yield ETF and Betashares Asia Technology Tigers ETF.

On the economic calendar front next week we may see investors react to US GDP growth rate data for Q4 out on Thursday, US durable goods orders also out on Thursday, US PCE price index for January, personal income and personal spending all out on Friday and key Chinese manufacturing PMI data out on Saturday next week.

On the reporting season calendar next week, we will see results out of Ampol (ASX:ALD, IRESS (ASX:IRE), Steadfast Group (ASX:SDF), Woolworths (ASX:WOW), Coles (ASX:COL), Atlas Arteria (ASX:ALX), Qantas (ASX:QAN), Dicker Data (ASX:DDR), Ramsay Healthcare (ASX:RHC), and Star Entertainment (ASX:SGR) among others.

And that’s all for this Friday and week, we hope you have a wonderful weekend and happy investing.