Banks, miners the winners of a resilient earning season

Australian companies are back in the winner’s circle.

Local companies posted strong gains this reporting season, led by major banks, gold miners and critical minerals.

Almost half of all companies improved expectations and the hit/miss ratio was at its best since 2021, according to AMP chief economist Shane Oliver.

“We’ve had three years in a row of declining listed company earnings in Australia before finally seeing a return to profit growth,” Dr Oliver said.

He said two-thirds of companies increased their earnings from a year ago and 56 percent increased their dividends, usually a sign that their earnings will continue to rise.

“Overall…it was a pretty good reporting season.”

IG market analyst Hebe Chen also generally agrees.

The overall takeaway is not necessarily explosive growth but institutional resilience, he told AAP.

“Margins were maintained, balance sheets remained fortified, and guidance, while appropriately cautious, steered clear of aggressive downgrades that have limited market rallies.”

Ms Chen said the results reinforced the belief that the Australian economy was weathering the twin pressures of inflation and restrictive interest rates much better than initially expected.

Ms. Chen said that the sector that is arguably the best performer this tomorrow is the banking sector.

Commonwealth Bank and NAB have cited disciplined cost hygiene and stable loan books, as well as flexible net interest margin, a key measure of bank profitability.

These fundamentals not only justify premium valuations but also turn the sector into a magnet for defensive capital flows, he said.

“We’ve all been blown away by the big four banks this earnings season,” said Anna Wu, VanEck cross-asset investment strategist, noting that CBA’s shares rose as much as eight percent on the day it reported earnings.

Ms. Wu said banks’ valuations were stretched, but increases in interest rates were boosting their margin potential.

The Australian economy is also proving resilient and loan arrears are falling.

“I think all of this creates a good outlook for banks in the short term,” he said.

VanEck believes 2026 will be a good year for Australian banks before their valuations become an issue in 2027.

Mining companies also performed quite well this earnings season, mostly driven by higher commodity prices.

“Gold and critical minerals were probably two of the most talked about buzzwords towards the end of last year and heading into this year,” Ms. Wu said.

While gold changed hands on Friday at $5,135 per ounce, up nearly 75 percent from a year ago, critical minerals such as rare earths, lithium and copper are also on the rise.

Dr Oliver said mining companies had gained strength from the Ukraine war in 2022 but had had difficult years since then.

“The mining company’s profits went from minus 17 percent a year ago to plus 33 percent, and there’s been a big turnaround here,” he said.

Unlike the financial sector, materials companies are still trading at a very reasonable valuation level, Ms. Wu said.

He and his VanEck colleague, senior portfolio manager Cameron McCormack, said the fund manager admired materials and select industrial companies.

Mr McCormack said the largest holding in the actively managed exchange-traded fund, known by the symbol ALFA, was actually Telstra Group, partly because it was “a very, very strong operator with strong pricing power in the Australian market”.

He noted that Telstra shares had a strong performance during the reporting season.

On the other hand, consumer-facing discretionary companies did not fare well either, with Wesfarmers, Harvey Norman and Flight Center lagging behind in results.

Discretionary retailers and travel-related stocks are flagging softening demand and margin compression, while consumer-facing names are bearing the brunt of macro volatility, Ms. Chen said.

“This difference underscores a clear squeeze,” Ms. Chen said.

“As corporate engines hum, the Australian consumer is finally starting to feel the weight of rising costs of living.”

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