Earnings season wrap-up: The state of the nation

Disclaimer: This article is for informational purposes only and does not constitute financial, taxation, or investment advice. The information is general in nature and does not consider any individual’s financial situation or needs. You should consult a licensed financial professional before making any investment decision.

Hopefully, you have survived this ever-turbulent February. It is not called the ‘killing season’ for nothing! Just to complicate matters this reporting season, we have had the added bonus of Trump-induced volatility to contend with.

What has been apparent is that the later the result, the more volatile the reaction. Harking back to those halcyon days in early February, things seemed quite normal – a ‘phoney’ reporting season. But as the month wore on, things heated up. Volatility rode back into town, spurs and all.

The playbook was to punish any miscreants who had the temerity to miss guidance, even by a smidge, and send the shares plummeting. It was not unusual to see 25%+ moves in a day, even for large, well-researched companies. I am not sure why these corporate geniuses didn’t soften up the market to lower expectations – a quiet word here, a conference drink there, to move the dial lower.

For whatever reason, it didn’t happen, and the trading bots were lying in ambush, waiting to pounce. If there was a large short position, then it was game on – push until you find the stops and, once triggered, push again.

As we approach the post-mortem, it is worth looking at some of this season’s results and, importantly, what they reveal about the corporate landscape.

I am going to try to draw some conclusions from the following four stocks: Wesfarmers (ASX: WES), National Australia Bank (ASX: NAB), Technology One (ASX: TNE), and Pro Medicus (ASX: PME). A broad church, as they say. Just nobody on the beach!

Wesfarmers (ASX: WES)

A conglomerate, not that fashionable these days, but the business spans retail, chemicals, and some resource exposure. The jewel in the crown is Bunnings, of course – a category killer. But Kmart is rapidly becoming a contender.

The Anko brand has been a real winner, with products at almost unbelievable prices flying off the shelves. Bunnings and Kmart are undoubtedly the driving forces here.

Key financials

• Kmart: Sales up 1.9%, EBIT up 6.5%, mainly due to margin expansion (~50bps to 10.5%)
• Bunnings: Revenue up 3.4%, with higher volumes and cost management supporting earnings growth
• Officeworks: EBIT up 2.1%, also contributing positively.

Positives

• WES is looking to take Anko international
• Significant upside in retail media, given its >12m customer database
• Interest rate cuts will be positive
• Officeworks will benefit from AI-driven tech upgrades.

Risks

• Retail slowdown and weak housing activity
• International rollout of Anko could disappoint
• Chemist Warehouse making inroads into Priceline
• Lithium business under pressure.

Summary

A class act with a well-diversified business model and quality management. Bunnings and Kmart are category killers with strong cost control. However, the stock isn’t cheap – PE ~31 vs. a 5-year average of 25.

The recent pullback may present a buying opportunity. Accumulate on further weakness – sometimes, quality comes at a price.

National Australia Bank (ASX: NAB)

While not a half-year or full-year result, this Q1 update sent the sector into a tailspin. Westpac (ASX: WBC) and Bendigo & Adelaide Bank (ASX: BEN) results were weak, adding to the negativity.

NAB had been riding high, trailing Commonwealth Bank (ASX: CBA) as the second most 'popular' bank. But this Q1 update missed expectations on most metrics. The problem? The banking sector had been priced as a growth play, and there was no sign of growth here. The stock reacted accordingly.

Key financials

• Q1 revenue missed expectations due to weaker margins and funding issues
• Mortgage wars continue behind the scenes – banks are competing aggressively
• 75% of all loans now go through brokers, eroding bank margins. CBA has an edge as it generates more loans in-house via its tech platform
• CBA generates 65% of its mortgages internally, 35% through brokers
• NAB, Westpac and ANZ: Closer to a 50/50 split between direct and broker channels
• Smaller banks (BEN, BOQ): Heavily reliant on mortgage brokers, which hurts margins.

Positives

• Share price drop has reset expectations
• Lower expectations = easier beats ahead
• No major red flags on credit quality yet, but needs monitoring
• Earnings downside may be less than peers.

Risks

• Intensifying competition
• Falling rates will squeeze margins
• Credit quality remains a concern
• Business lending becoming more competitive.

Summary

The premium has come out of NAB’s share price, making it a more attractive entry point for investors. Interest rate cuts may hurt margins but could be offset by easing credit risks.

At PE ~15, it's still slightly elevated, but the 4.8% yield is attractive. However, a softer dividend is possible in May. So beware of illusionary and historic yields. Politics will play a role, with an election ahead.

Still a hold. Brokers remain cautious, and while bank stocks may have lost their shine, NAB remains attractive for long-term investors. There is also room for capital management to continue in the sector.

Technology One (ASX: TNE)

TNE is a high-quality tech stock. This was an AGM update rather than full results, but the numbers were strong:

Key financials

• PBT up 18% YoY to $152.9m (above 12%-16% guidance)
• ARR up 20% to $470.2m, driven by SaaS ERP demand
• Full-year dividend up 16% to 22.45c
• Cash and investments up 25% to $278.7m.

Positives

• $500m ARR milestone expected by H1 2025, with a new $1bn ARR target by 2030
• UK expansion showing strong traction (70% sales ARR growth)
• Acquisition of Course Loop offers upside
• Huge $13.5bn addressable market.

Risks

• High PE (~86), meaning high expectations must be met
• General tech stock valuation concerns
• Cybersecurity and competition risks in a lucrative market.

Summary

TNE continues to execute well with strong ARR growth. However, its high valuation demands perfection. The stock has pulled back, so more consolidation could be ahead.

A long-term winner, but AI's impact remains uncertain. One to watch, but maybe too highly priced for now.

Pro Medicus (ASX: PME)

A market darling, recent US contract wins have driven the share price higher.

Key financials

• Revenue up 29.3% to $161.5m
• NPAT up 36.5% to $82.8m
• Dividend: 22c
• Nine major contracts ($245m) secured, including Baylor Scott & White Health.

Positives

• Best-in-class speed, AI capabilities, and cloud-native approach
• FDA, CE Mark, and TGA approvals = regulatory green light
• Strong pipeline of contract wins
• High-margin, recurring revenue model.

Risks

• Competes with Sectra, Philips, and GE
• Concentration risk (90% of revenue from US)
• US healthcare regulation risks
• Priced for perfection.

Summary

PME is a global success story, but its high valuation leaves little room for error. Contract momentum is strong, but regulatory and pricing risks remain.

The cardiology module presents upside, but execution is key.

It’s the economy, stupid

It would be fair to say that results have been somewhat random, as have the usual outlook statements.

• Consumer spending is weakening and becoming even more discretionary. Some are doing just fine – Universal Store (ASX: UNI) and JB Hi-Fi (ASX: JBH) – but others are struggling
• Banks remain expensive, and competition is taking a toll. Credit quality is still holding up, but there are signs of stress in certain sectors
• Tech is expensive but holding up
• The local economy has held up, but there are now signs that all is not well. The record highs we have seen recently have been driven by banks, not resources, which have struggled. Lower commodity prices are the driving force there
• Investors are favouring high-quality, defensive stocks with pricing power and strong cash flows. But they need to deliver – disappointment is not an option.

If this was a report card, I would give it a C grade and a "could try harder" comment. Maybe an "all things considered, not a bad effort". "Under the circumstances!"

Until next season!

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This article has been prepared by Marcus Today Pty Ltd ABN 57 110 971 689, a Corporate Authorised Representative (No. 310093) of AdviceNet Pty Ltd ABN 35 122 720 512 (AFSL 308200). The information is general in nature and does not consider the financial situation of any individual. Past performance does not necessarily indicate future performance. Before making any financial decision, consider seeking advice from a professional financial adviser.