Australian Corporate Earnings Report

By Sneha Kumar

(Reuters) – Corporate Australia is set to begin its half-year earnings next week. Modest growth is expected, but traders will examine whether profits justify inflated valuations amid challenges like U.S. tariffs.

The ASX200 benchmark is trading at over 18 times future earnings, approximately an 11% premium to its average valuation over the past decade, primarily due to a significant rally in financial stocks last year.

While a flat or slightly higher earnings season is anticipated for the broad market, missing expectations could lead to declines in high-valued companies.

Analysts from retail stockbroker Morgans noted that, “the February reporting season offers a crucial window into corporate Australia’s health… with earnings slowing in aggregate, valuations appear to have less room for error this season.”

Global trade uncertainty, notably from U.S. tariffs on partners like China, a weakening Australian dollar, and fewer anticipated interest rate cuts have amplified scrutiny on valuations.

Morgans analysts do not foresee blue-chip firms with solid fundamentals missing earnings forecasts; however, they suggest that growth surprises are necessary to support further valuation expansions.

The financial sector, led by Commonwealth Bank, which enjoyed a 28% rally last year, is positioned for decent earnings growth aided by high interest rates, according to analysts from Morgans and UBS.

Citi analysts forecast a “relatively benign reporting season” for Australian banks with stable margins and solid credit growth; however, high expectations are mismatched with a modest core earnings outlook.

Conversely, resource firms are facing challenges, with projected low to mid double-digit earnings declines driven by BHP Group due to weak Chinese demand and higher operational costs.

Despite a bleak performance last year, analysts suggest that the sector might offer “value on offer” to investors, though concerns about demand and geopolitical risks may overshadow improving metrics.

Retailers are expected to show strong first-half results thanks to a rise in household spending. Anticipated interest rate cuts later in the year could further stimulate spending.

Market analyst Grady Wulff from Bell Direct predicted that the rate-sensitive sectors of tech, consumer discretionary, and real estate may attract investors in the latter half of the year.