Reporting Season Wrap: February 2025

For financial advisers and professional investors only – not for distribution to retail investors

March 25, 2024

The reporting season of February 2025 broadly surprised to the upside, though results were mixed, with some notable misses from some key listed names. Market volatility reached unprecedented levels, with average intraday share price swings of 7%. The S&P/ASX 300 Accumulation Index fell -3.8% over the month, reflecting a challenging environment.

More than 320 companies reported their results, with 33% beating expectations, 35.5% meeting expectations and 31.2% falling short. Broker responded with 45 upgrades and 52 downgrades. Companies that posted NPAT (Net Profit After Tax) beats experienced an average share price increase of 2%, while those that missed fell by 5%.

Sector performance and key factors

Defensive sectors outperformed amid market weakness. Utilities (+3.2%) led the pack, while technology lagged with a 12.3% decline, largely driven by WiseTech’s (WTC) 25.2% drop following governance issues and a modest guidance cut. Momentum was the worst-performing factor, down 5.3% while high-dividend yield stocks outperformed by 2.6 percentage points.

Chart 1: Average share price reaction since result per sector

Source: FactSet

The key insights identified during the February Reporting Season include:

• EPS Revisions: Sell-side analysts showed mixed reactions post results, with 77 companies receiving upgrades and downgrades for 81. This resulted in modest downwards adjustments to earnings forecasts, with FY25 growth revised to -0.7% and FY26 growth now forecast at +8% based on broker consensus (FactSet).
• High Dividend Yields: Stocks that increased dividends or paid out high yields remained well supported by the market, reflecting a preference for income generating assets in a volatile environment.
• Sentiment has cooled: Uncertainty around U.S. policy under Trump and tightening financial conditions contributed to a more cautious investor outlook.
• AI adoption: AI continues to capture attention, though its financial impact remains unclear. Companies highlighted AI’s potential to enhance customer service, but concrete pathways to revenue growth remain elusive.
• Outlook and Guidance: Management commentary suggested that the most challenging macroeconomic conditions may be behind us, yet remained cautious in their outlooks. Most companies maintained their forward earnings guidance, opting for a wait-and-see approach.

Reporting Season observations

The 3:2 ratio of NPAT beats to misses is consistent with what is a standard outcome. However, it does suggest that analysts had already factored the current environment allowing for the preceding two years of macro-driven headwinds.

Chart 2: Results beats vs. misses

Source: UBS, Visible Alpha, Actual Results (NPAT) vs. consensus estimates

Chart 3: Relative Sector Returns

Source: Macquarie, FactSet

Retail resilience amid economic headwinds

Despite the RBA announcing the first rate cut of the cycle, its effect on easing cost-of-living pressures is expected to take time. As retailers indicated, consumer demand may remain subdued over the next six months, potentially impacting discretionary spending and profits in the near term.

AI in AU

AI, data centres, and chip-related technology stocks continued to attract investor interest, particularly in anticipation of future rate cuts. Goodman Group’s $4bn capital raise, its first in 12 years, was well-received, with funds earmarked for expanding its data centre footprint, underscoring the long-term growth prospects in AI-driven infrastructure.

Fund performance for February

• The Macquarie Australian Small Companies Fund outperformed its benchmark, returning -1.22% versus -2.80%. Over the last 5 years, the fund has generated a return of 12.16% p.a. versus the benchmark return of 5.57%.
• The Macquarie Australian Shares Fund returned -3.91%, marginally trailing its benchmark (-3.79%). Over the last 5 years, the fund has generated a return of 11.87% p.a. versus the benchmark return of 8.87%.
• The Macquarie Australian Enhanced Plus Fund similarly underperformed, returning -4.11% versus -3.78%. Over the last 5 years, the fund has generated a return of 10.64% p.a. versus the benchmark return of 8.79%.*

Daily share price movements were heavily influenced by company-specific factors following results. However, once initial reactions settled, traditional investment styles played a more prominent role in driving performance.

The two charts below show the top three style contributors and detractors for the month of February and the six months from 1 August 2024 to 31 January 2025 for the Macquarie Australian Shares Fund. During February, size shifted from being a key detractor to a performance driver due to the portfolio’s underweight exposure to larger-cap stocks. As highlighted earlier, the market rewarded stocks that met or beat dividend expectations, marking a notable change in return drivers compared to the previous six months. The portfolio benefited from explicit exposure to higher dividend-yielding stocks.

Conversely, volatility emerged as a major detractor, with some of the higher-volatility stocks in the market posting strong results, increasing their significance to performance compared to the prior period. The process appears to have been more exposed to lower-volatility stocks, resulting in a performance drag as the portfolio did not participate in these higher-volatility gains.

Chart 4: Top 3 & Bottom 3 Style Contributors & Detractors
Macquarie Australian Shares Fund 1 February 2025 to 28 February 2025

Source: Macquarie, Axioma. Past performance is not a reliable indicator of future performance.

Chart 5: Top 3 & Bottom 3 Style Contributors & Detractors
Macquarie Australian Shares Fund 1 August 2024 to 31 January 2025

Source: Macquarie, Axioma. Past performance is not a reliable indicator of future performance.

The following table highlights key stock contributors and detractors during the month:

Italics indicates underweight positions

Implications for fund positioning

The deluge of new data during Reporting Season – financial, market-related, and analyst-derived – typically reshuffles relative stock rankings in our models, reflecting the complex interplay between the model’s interpretation of new data and the market’s reaction to company results. These insights generally prompt gradual adjustments to positioning in subsequent months, with a focus on maintaining moderate turnover levels.

What’s next for equity investors?

The February 2025 reporting season signalled a shift in sentiment towards a more defensive mindset, with increased focus on income and a move away from large-cap, higher-growth momentum stocks. The Australian consumer has shown resilience; however, ongoing cost-of-living pressures and the Reserve Bank of Australia’s (RBA) measured approach to rate cuts may temper broader market enthusiasm.

Additionally, global geopolitical factors remain a key consideration. Uncertainty surrounding Trump’s policies and China’s ongoing recovery post-pandemic could influence market sentiment in the months ahead. Meanwhile, heightened demand for commodities — potentially driven by rising geopolitical tensions and China’s recovery — suggests positive momentum for Australia’s materials sector.

Looking ahead, we expect the Australian equity market to deliver moderate returns over the next 12 months, with the potential for a more favourable borrowing environment as global central banks begin easing rates. As market volatility persists, systematic strategies designed to capitalise on market inefficiencies may be well-positioned to navigate these challenges.

*Past performance is not a reliable indicator of future performance.  Up to date performance information for the funds referred to in this insight is available on our website at macquarie.com/mam/au-performance. All performance figures above are net of fees.

The Macquarie Australian Shares Fund is designed for consumers who:

• are seeking capital growth and income distribution
• are intending to use the Fund as a core component, minor allocation or satellite allocation within a portfolio
• have a minimum investment timeframe of five years
• have a high or very high risk/return profile for that portion of their investment portfolio, and
• require the ability to have access to capital within one week of request.

The Macquarie Australian Small Companies Fund is designed for consumers who:

• are seeking capital growth and income distribution
• are intending to use the Fund as a minor allocation or satellite allocation within a portfolio
• have a minimum investment timeframe of five years
• have a very high risk/return profile for that portion of their investment portfolio, and
• require the ability to have access to capital within one week of request.

The Macquarie Australian Enhanced Plus Equities Fund is designed for consumers who:

• are seeking capital growth and income distribution
• are intending to use the Fund as a core component, minor allocation or satellite allocation within a portfolio
• have a minimum investment timeframe of five years
• have a high or very high risk/return profile for that portion of their investment portfolio, and
• require the ability to have access to capital within one week of request.

The Target Market Determination (TMD), available at macquarie.com/mam/TMD, includes a description of the class of consumers for whom the Fund is likely to be consistent with their objectives, financial situation and needs.