2025 Australian reporting season: Results, opportunity, positioning, outlook

Well, it was a highly unusual reporting season because it was the most volatile on record, and I think this is best illustrated by a 25% relative move between Coles and Woolies, which at the end of the day of the day are pretty similar supermarkets. We also saw the biggest one day moves ever for James Hardy CSL, high quality names like that, having very, very big moves. And that’s unusual. I think when we think about the market as a whole, we’re seeing, we saw a lot of volatility, but we’re also seeing a lot of crowding into a narrow range of stocks, particularly defensive stocks. It’s been a very strong market trading at record highs, but it’s been crowding into gold into some domestic names. And you’re seeing that like with banks trading on or CBA trading on close to 30 times, delivering 3% growth, or West Farmers trading on 40 times delivering 4% growth. That crowding into those names is a little unusual. When we look at the market as a whole for the Australian market the next couple of years at an index level, offers pretty flat, flat growth stocks trading at record highs of 20 times. So I think it’s really important to be a bit selective in terms of where you find the opportunities.

I think the opportunities in the market are going to arrive by taking a differentiated view to the market and taking a longer term view. With that volatility in the market, it means there’s some pretty good quality companies trading cheaply or deeply out of favor, and you get some of those calls, right? You can make some significant money rather than crowding into the names that everybody else is buying. I think the two that obviously come to mind is James Hardy and CSL, I think from a James Hardy perspective, had a very soft quarter. You saw a decent slowdown in the us but the market effectively is capitalizing that soft quarter and assuming that this cyclical slowdown continues long into the future, at the end of the day, they’re heavily exposed to the US renovation and repair market. This is four years into a downturn. We know Hardy’s product is highly regarded market leading product, and when the cycle turns, be it from lower US interest rates or just through time, we see a substantial upside for Hardy’s or through the cycle view. CSLs a little different. They also has had a soft result or saw 3% downgrades in the market, but the stock has fallen more than 20% trades that mid-teen multiples offering double digit growth, and that’s going to come via a very solid industry backdrop. They’re market leaders in a strong industry that’s growing. They’ve got margin opportunities to improve margin and while it may not offer the growth it used to, it still offers very good growth compared to most stocks in the market. So we think that’s a very good opportunity as well. And in terms of not just talking about the negative results from the month, the best result in our portfolio was Seek seeks had a number of years where it’s lagged, its peers, car sales and REA, and this was the first result that really showed evidence of the operating leverage that they can deliver. They’re getting yield growth, good double digit yield growth growth given they’ve had a significant investment in recent years in AI in product development. And that’s done to come through in price and their volume looks like it’s starting to bottom as job numbers start to improve slightly. So if you get an uptick in job numbers with double digit yield growth and margin expansion, you can get to some pretty meaningful profit growth compared to others in the market. And after a number of years where it hasn’t traded that well, it looks attractively priced well.

The portfolio at the moment has a PEG ratio, which is your price to earnings ratio divided by the growth of the portfolio of less than one and a half, which is substantially below what the broader market has got. And that implies that we’re in some stocks which offer good growth, and we’ve got them at reasonable prices. I think you combine that with a very good ROE on the portfolio, very good free cashflow yield suggests we’re in some good, good quality companies that can deliver a return to overtime. The key areas that we’re exposed to include some really high quality industrial stocks like some of the platform businesses, some software businesses, some healthcare businesses, and some quality industrials that are well managed. In addition, we have been adding to the resource space. We think when we look across the globe, many governments are running big deficits. You’ve got Europeans spending on defense, you’ve got in the US big spend on ai, robotics, data centers. China’s trying to stimulate their economy. So the demand story looks quite interesting here and a lot of those companies are quite cheap. So we’ve got an interesting mix of high quality companies which offer growth and value.

We think the portfolio will do well when the market starts to sell those domestic stocks that it’s crowded into and starts to seek opportunities elsewhere. And this could happen for any number of reasons. It could be due to US interest rate cuts, it could be due to further Chinese stimulus, perhaps tariff resolution or further deregulation. There’s any number of reasons, and it’s important to remember that a one-way trend doesn’t continue forever, and you want to be positioned for where the markets go to end up rather than where it is today. And so we think we’re positioned in some great quality companies, we’ve got some excellent names across the portfolio, and as that money starts to gravitate towards those, then that’s when the opportunity for our performance will arise.