The Australian market is gearing up for the February profit season, with analysts anticipating the first year of aggregate profit growth for the ASX 200 since the 2022 financial year. According to Goldman Sachs strategist Matthew Ross, booming commodity prices are expected to significantly boost mining earnings, driving much of this growth. The reporting season should also confirm a generally positive macroeconomic environment, characterised by improving household spending, strong labour markets, robust labour growth, and positive business confidence.
However, inflationary pressures, as battled by the Reserve Bank of Australia (RBA), are likely to manifest as cost inflation across the market. Elevated wages in sectors like healthcare, discounting impacting discretionary retailers, and firm bank costs are expected to be prominent features. While many companies are actively engaged in cost-cutting programs, rising inflation may negate these efforts.
Amidst the anticipation, Goldman Sachs has identified potential candidates for both positive and negative surprises. National Australia Bank (NAB) faces scrutiny over its capital position, while Brambles could see weakness in US consumer staples and rising costs. Qantas, Macquarie Group, Computershare, Breville Group, and Chrysos are among those tipped for positive results.
Other companies expected to perform well include QBE Insurance, Challenger, Judo Capital, CSL and Woolworths. Goldman Sachs believes the market has underestimated CSL’s defensive earnings capabilities. For Woolworths, strong sales momentum in January and February may help it close the gap with rival Coles. CSL is a global biotechnology company that develops and delivers innovative medicines. Woolworths Group is a major Australian retailer with operations in food, liquor, and general merchandise.
