Australia’s earnings season winners emerge

APO, CSL, ASX, Treasury, Wines NZ among Australian companies that hit the reset button during the 2026 financial year, and investors who kept faith in some of these restructuring leadership efforts reaping reward signs of progress unveiled during earnings season. Seeing some boost there to those stocks. But let's get a little bit more of an assessment when it comes to this earnings season and the outlook. Alfreda Yonkers, a portfolio manager, an investment specialist at Affinity Investment Management. Oh, Fred, always great to have you with us. And I love this. Uh price perfection delivering for average an overall uninspiring. Yes. That was probably a little bit dramatic there with my description, but I think it does ring true. If you look at the current reporting season here in Australia, it has been not necessarily disappointing because overall earnings are coming through sort of in line with expectations, but it really has been commodities dragging most of the sectors up. And if you exclude that average earnings growth for this season is currently sitting around, um, 5% only relative to an average of 10%. So overall, it doesn't look like a lot's going on. But underneath the hood we have seen quite a bit of dispersion, not just across sectors, but also within sectors where companies are beating or raising estimates and those that's just coming in in line. So if you do buy the miners, but you top one of your top conviction causes is actually BHP. But what we were talking about earlier, how, you know, these iron ore miners are now copper miners. Yeah, absolutely. And it is one of the key reasons why we have increased our position in BHP. If you look at their recent results. More than 50% is now copper. And copper is one of those base metals that we believe are geared to a number of structural traits that supporting it, not just the I buildout, but also electrification and renewables. So for BHP, still one of those. Yes, it is our biggest stock in there on the ASX and it's probably a little bit of a boring peak. But for us it is one way we believe with that balance sheet. Fantastic management and importantly also the capital management that they've just announced. Again increasing dividend increasing buyback. There's a lot of support for BHP from here. So it definitely does deserve a position in a portfolio in Australia. You have the material sector been performing pretty well as a whole, which stands in sharp contrast to what's going on in the other heavyweight sector on the ASX, which is financials banks particularly. How much of what's going on with the banks is idiosyncratic and how much is it due to rates rising and all the tax changes we've seen around the property market? Yes, I think it's probably a combination of all of the above. If you look at all the banks effectively, they have reflected in this results season that the consumer in Australia is a bit softer. If you think around all the challenges that we are facing here, it is, you know, higher interest rates, housing prices coming down. Confidence is just not there. So they are seeing that impact coming through on mortgages. So at this point in time, pretty much all the big banks are seeing earnings downgrades. And they come from a period of a relatively long period of earnings upgrades. So for us, this is a sector where we have been reducing exposure with a preference of some of these other financials HP and Macquarie. Starting to look a lot better than what they were over the last few years. And how do you see that property story playing into broader consumer sentiment as well in consumer stocks? I think it is a big deal. A big part of the Australian wealth is sitting in the property market. So currently you have already seen a big drop. And I think it is also about the expectation from here. A lot of people are standing back not wanting to buy because they expect a lower price. And if you think about the biggest portion of wealth for the Australian consumers sitting in housing prices, and you're uncertain of where that's going in an environment where inflation is higher and potentially interest rates could still increase as well. I think it is playing a really big part, and that is what you're picking up in the outlook statements from a lot of companies this reporting season. Is that more cautious tone, particularly around the consumer. And really it's it's a confidence game. And at this point in time, there's not a huge amount that's benefiting the Australian consumer to be more confident in what's ahead. I wanted to ask your views on on AI because as you point out, Australia is kind of the the anti I trade. You see the days when the oil price goes up, the energy trade comes roaring back as well. But do you think there are opportunities particularly we know that both sides of government at the moment tried to come to a bipartisan consensus on AI data center build out, you know, guardrails look like other opportunities for this economy and Australian corporates that might benefit from that. Yes, I definitely think so. Um, and particularly in that data centre space, there are many companies that's busy building out data centres, Goodman and DC being two of the bigger ones. But there's also a huge amount of private companies that's building out and that is going to support, um, construction commodity companies. And I think for us, if you look at how we invest in AI globally, we sort of look at the various different stages of that ecosystem, and we like to invest in, uh, sort of different companies across that. So here we do think that the Goodman Group is a good company. Longer term growth. They are betting big on, um, on data centers. So we do think that is a good option. But then on the commodity side, like we say PHP and the copper, um, a company like a mega port sort of seen as a bit of a neo cloud. And then they are those companies that's been adopting AI and rolling out AI products to improve efficiencies. Um, companies like Codan Venture Services yesterday, again talking about they've been leads. So we do think that this is an environment where currently to date in this reporting season, more than 60% of the companies have talked about AI and what they doing. The majority of that is about improving efficiencies, reducing costs. So I think the overall economy here will benefit eventually. I just think because 2% of our benchmark sits in technology, we are not seen as one of the major beneficiaries of that. I build out to some degree. Do you see the ASIC's, uh, acting as a hedge against the AI story as well for global investors? Definitely, I think so. And you could see that, as Heidi mentioned recently, um, every time there is an AI day, Australia is benefiting. And it's not just today at some point. Exactly. Today I said points. And really it's also benefiting from the Asian flows. If you think about Taiwan, South Korea, these markets have become AI markets with TSMC and X and so forth listed the ways we don't have that. So definitely I think we are seeing as a region time will probably only tell if that's going to be a good thing or a bad thing. Overall. I think for us the important thing is really just stick to your investment process, stick to those companies that you're looking for and have a diversified exposure not just to AI, but also those companies that can continue to improve their earnings profiles from here to Tokyo. We're talking about BHP, but take us through some of the other top picks stock wise. Yeah. So I think across the industrials we really like the inter services. Um it really is more a servicing business. Um and what we like about that is that they are exposed to a number of sectors in the economy, but more recently there have been tilting back to defense. And that is one where there is a structural underpinning, not just in Australia but globally. Companies are countries are spending more on defense and that's a higher margin business for them. And as I've mentioned also the I overlay that we're really starting to roll that out. So we like that as a beneficiary. Strong management really doing a lot on costs. And of course also that capital management portion that we seeing a lot of 70 US one. And then I think some of the other companies that's really surprised in this reporting season that we like our names in the um, sort of financial space, like a, a p. They've come through quite a difficult period, a number of years of earnings downgrades. And we think they are now at the point where they've done a cost reset. So we have been seeing a lot of positive revisions coming their way, not just on the strategic wealth business, but also I think a lot of what they've done over the last few years have reset the cost base for them and also expanding on the platform business. All that investment in technology is now coming through. So you seeing that empty north platform benefiting from flows. And then also what we like is that offshore exposure, they are recently seeing really good results from the investment in China. And we speak more of that to come through. So again capital management. But it's one of those businesses that in a tough environment they doing a lot of self-help and also trading at a reasonable valuation. So that's another one that we really like as well. All right Alfreda, thank you so much for stopping by with your views today. That is Alfreda Jonker, client portfolio manager at Affinity Investment Management. And we have more on Australia ahead every Tuesday at 10:40 a.m. if you're watching in Sydney, that is 8:40 a.m. in Hong Kong. This is Bloomberg.