Not immune – Reporting Season February 2020


By Macquarie Australian Equities


As reporting season comes to an end, we look back at how the Australian equity market performed: dissecting the key themes that emerged and evaluating how this may impact markets going forward.

Overall, the Australian market endured a weaker than expected reporting season. The S&P/ASX 300 Accumulation Index finished the month down 7.76%, due to a coronavirus-related market correction of 9.57% experienced during the last week of the month.

Across the market, FY20 earnings were downgraded by 3.2%, with 36% of companies missing expectations. As always there were hits and misses aplenty, many of which were met with explosive price moves.

Several themes emerged this reporting season. The key trends we identified include the following, which are outlined in more detail below:

  1. Coronavirus creating uncertainty
  2. Domestic housing seeing “green shoots”
  3. Technology stocks disappointing

Coronavirus creating uncertainty

While Australian equity investors focused on company profit results during February, concerns regarding the global spread of coronavirus continued to grow, resulting in a sharp sell-off late in the month.

As the scale of the outbreak grew during the month, the likelihood of a material economic impact also increased, initially for the Chinese economy, but potentially more broadly.

At this stage, the direct impact on economic activity outside of China remains uncertain and will be determined by how successfully authorities manage quarantine efforts. With a growing number of reported cases in countries such as Italy, Iran and South Korea, containment will be critical to determining the short-term direction of the market. Additionally, how global policymakers respond with monetary and fiscal support will be important for investor sentiment in the short-term.

As the importance of the Chinese economy has grown over recent years, so too have the number of Australian listed companies that are to varying degrees reliant on Chinese customers for growth. As a result, many companies struggled to provide profit guidance during reporting season, given the uncertain short-term demand outlook.

Key sectors which may be negatively impacted by a short-term fall in activity, as a result of coronavirus, include:

  • Travel – Examples include Flight Centre (FLT, -17.0% during February), Qantas (QAN, -13.7%), Sydney Airport (SYD, -7.4%), Corporate Travel Management (CTD, -21.7%), Webjet (WEB, -18.6%),
  • Tourism – Examples include Sealink (SLK, -4.6%), Crown (CWN, -13.2%), Star Entertainment (SGR, -10.2%)
  • Employment – Examples include Seek (SEK, -8.9%)
  • Consumer goods – Examples include Treasury Wine Estates (TWE, -15.4%)
  • Education – Examples include IDP Education (IEL, +19.6%)
  • Metals and Mining – Examples include Rio Tinto (RIO, -11.6%), Bluescope Steel (BSL, -16.6%)
  • Energy – Examples include Woodside Petroleum (WPL, -17.2%) and Beach Energy (BPT, -33.9%)

On the positive side, heightened risk aversion and low interest rates continued to support gold producers and bond-proxy yield stocks, such as REITs.

Some examples of stock movements that added value include gold producers Northern Star (NST, +6.8%) and Evolution Mining (EVN, +10.8%), and REITs such as Charter Hall (CHC, -3.0%).


Domestic housing seeing “green shoots”

Aside from coronavirus, an ongoing focus for investors during February was the assessment of housing-related businesses, following several Reserve Bank of Australia rate cuts and a return to strong house price appreciation in Sydney and Melbourne.

Companies exposed to residential property turnover reported that while property listing volumes have been weak, a near-term improvement is imminent. Both REA Group (REA, -13.8%) and Domain Holdings (DHG, -15.3%) noted that listings volumes have materially improved post-Australia Day, with buyer interest well in excess of available supply.

Improving momentum in housing turnover also drove positive share price performance for mortgage brokers such as Australian Finance Group (AFG, -9.5%). Stronger credit growth should also benefit the large banks, although margin headwinds from lower interest rates and higher remediation costs remain. Commonwealth Bank (CBA, -1.7%) enjoyed a re-rating relative to sector peers following a clean result.

Discretionary retailers exposed to housing turnover also noted an improving outlook. JB Hi-Fi (JBH, -4.7%), Temple & Webster (TPW, +13.3%), Nick Scali (NCK, +1.7%) and Adairs (ADH, +8.5%) all delivered better than expected results. Online homewares retailer, TPW, indicated that the structural trend towards online retailing gained further momentum in recent months.

However, it wasn’t all smooth sailing for housing related companies. Building material companies exposed to domestic residential construction activity generally posted weak results. Boral (BLD, -9.2%) and Reliance Worldwide (RWC, -24.9%) called out the ongoing weak activity, with the construction cycle yet to bottom. But bathroom and kitchen fixtures manufacturer, GWA Group (GWA, -6.4%), noted an expected pick-up in the coming months.

Some examples that added value include holdings exposed to a recovery in residential activity, namely TPW, JBH and CBA.


Technology stocks disappointing

Following several years of beating market expectations, several mid-cap information technology stocks disappointed investors during February.

The high-profile group of “WAAAX” stocks (Wisetech, Altium, Afterpay, Appen and Xero) had a mixed February, with Altium (ALU, -22.2%), Appen (APX, -18.1%) and Wisetech (WTC, -39.7%) all missing expectations. Other emerging technology stocks, such as EML Payments (EML,-31.2%), also saw some weakness following a period of strong share price performance.

Traditional internet stocks, such as (CAR, -6.0%) and Seek (SEK, -8.9%) performed relatively better, given their reasonable valuations and demonstrated track record of profitability.

Some examples that added value include, remaining underweight to the “WAAAX” group, with a preference for those we see as better value exposures in the sector, such as Infomedia (IFM, +3.4%), and Bravura Solutions (BVS, -18.6%).


Sector performance

Unsurprisingly, given the “flight to safety” during the month, relatively defensive sectors such as Utilities and Health Care outperformed many higher-growth sectors, such as Energy and Information Technology.

ASX Sector Returns - February 2020 graph

Source: Macquarie, IRESS

Factor performance

During February, our proprietary factor analysis indicated ongoing outperformance in companies exhibiting strong Sentiment and Quality. Value companies continued to underperform, but did see some improvement late in February amid the coronavirus related sell-off.

Cumulative ASX Factor Performance graph

Source: Macquarie


Fund performance

Source: Macquarie, IRESS


Past performance is not a reliable indicator of future performance. *The Fund’s investment strategies changed effective 18 December 2017. Until 17 December 2017, the strategies were managed with a fundamental approach. From 18 December 2017, the strategies were restructured such that they are managed with a quantitative, systematic investment approach. **Benchmark for the Macquarie Australian Small Companies Fund and the Macquarie Australian Emerging Companies Fund is the S&P/ASX Small Ordinaries Accumulation Index. Benchmark for the Macquarie Australian Shares Fund is the S&P/ASX 200 Accumulation Index. *** Inception for the Macquarie Australian Shares Fund is 29 Nov 2005; Macquarie Australian Small Companies Fund is 6 July 2006; and Macquarie Australian Emerging Companies Fund is 27 Oct 2016.



The February reporting season saw the emergence of coronavirus as a key short-term theme in the Australian equity market. We continue to monitor this risk closely and its evolution over the coming weeks and months will be critical for the performance of stocks, sectors and factors going forward.

The Macquarie Australian Equities team aims to deliver consistent performance outcomes and are pleased to have delivered solid relative returns through various market conditions and during heightened market volatility. The team aims to achieve this through the use of sophisticated technology and data, which facilitates more efficient real-time coverage of the investible universe.

A focus on risk management helps to ensure that the portfolios are constructed in a robust framework, with the portfolios exposed to a well-diversified range of themes with the aim of ultimately reducing exposures to downside risks.


Note: All stock returns are total returns for the month of February 2020