Hamish Tadgell
Australian equities are heading into the February reporting season with improving earnings momentum, driven by strength in the resources sector and a more supportive macro backdrop, according to Hamish Tadgell, portfolio manager at SG Hiscock.
Tadgell said expectations for FY26 earnings growth have lifted meaningfully since AGM season, underpinned by a surge in commodity prices and upgrades across the resources sector.
“We expect reporting season to be relatively resilient, supported by improving cyclical conditions and generally conservative guidance,” said Tadgell.
“Earnings growth into 2026 has improved materially, with resources now accounting for around two-thirds of expected market earnings per share (EPS) growth in FY26. Resources earnings growth is running at around 15 per cent, and we expect the positive trends around commodity pricing and currency support to flow through to results.”
While the overall outlook is constructive, Tadgell said cost pressures will remain a key theme, particularly for companies with limited pricing power.
“Rising wages, energy and input costs continue to challenge margins,” he said. “We’re already seeing this play out in the consumer discretionary sector, where companies such as Super Retail Group (SUL), JB Hi-Fi (JBH), ARB Corporation (ARB) and Temple & Webster (TPW) have the need for higher promotional activity and discounting stimulate demand and drive sales.”
Tadgell expects volatility around individual stock results to remain pronounced, particularly among quality growth names that have experienced valuation sell-offs.
“Given the de-rating we’ve seen across many quality growth stocks, there is potential for outsized moves this reporting season if companies can demonstrate that underlying business fundamentals remain intact,” he said.
“That said, we continue to think the valuation derate we have seen around the technology sector and concerns around return on AI investment could weigh on sentiment towards the sector in the near term.
“History shows that even when disruptive technologies are transformative and the longer trend is only going to be one way, like we have seen with digital classified advertising, online retailing and more recently obesity drugs, when the initial euphoria gives way to focusing on cashflows and returns its not unusual to see a hiccup or period of consolidation for a while.”
Management commentary is also expected to be closely scrutinised, with many companies entering reporting season under new leadership.
“There has been an unusually high level of CEO turnover over the past six months,” Hamish notes. “For companies like Carsales.com (CAR), REA Group (REA), Treasury Wine Estates (TWE), Endeavour Group (EDV), Domino’s Pizza Enterprises (DMP), Rio Tinto (RIO) and South32 (S32), this will be an important opportunity for new CEOs to set direction and reset expectations.”
Capital management may prove another key differentiator, with the market’s dividend yield sitting at around 3.2 per cent, below long-term averages.
“Companies that can surprise positively on dividends or capital management initiatives are likely to be rewarded in this environment,” he said.
From a sector perspective, Tadgell expects most resource companies to report solid results, supported by resilient commodity prices, a weaker Australian dollar and generally positive demand conditions. He highlighted aluminium and copper producers as particularly well positioned, given supply-side constraints and structural growth drivers.
Selective opportunities are also emerging in quality growth stocks following sharp valuation retracements.
“While some names still look expensive, we’re starting to see more attractive opportunities where valuations better reflect growth prospects,” he said. “We prefer companies trading on more reasonable multiples and with strong price-to-growth characteristics, including ResMed (RMD), Aristocrat Leisure (ALL) and Light & Wonder (LNW).”
Tadgell also highlighted Australian classifieds businesses as relatively well positioned to manage AI-related disruption.
“These businesses benefit from strong customer franchises, high levels of organic traffic and vertical specialisation,” he said. “Following recent de-ratings, Seek (SEK) remains preferred, with the potential for an inflection in volume growth alongside improved yield from dynamic pricing.”
Looking ahead, Tadgell believes the broader market backdrop remains supportive, despite ongoing risks around interest rates and bond yields.
“While macro factors, particularly monetary policy and any move by the Reserve Bank to increase rates in February can still overshadow results, we believe the environment is becoming more conducive for earnings delivery and broader market participation.”
