Author: Hugh Dive

For equity analysts and fund managers in Australia, Christmas comes twice a year, every February and August, when most Australian listed companies reveal their semi-annual profit results. Companies also guide what growth in profit, revenue, profit margins or dividends that shareholders can expect over the following financial year. 

When companies miss market expectations for earnings, a guide to a bleaker future the day can be very unpleasant. Alternatively, it can be enjoyable when the company reports a result that validates the investment case for including the stock in the portfolio. 

In this piece, we will explore how Atlas approaches each day during the reporting season and what typically occurs during a typical day during the August earnings season that kicks off next week. 

Before Reporting Season   

In the lead-up to reporting season, Atlas reviews all the stocks in the portfolio and considers the key factors and financial metrics that investors will be looking for on results day. We compare our forecasts to the consensus analyst forecasts. What we are trying to do here is to identify which companies are performing ahead of expectations and, more importantly, which companies have the potential to disappoint. For example, in June, we trimmed our positions in Wesfarmers and Commonwealth Bank (again) based on our view that their share price movements in 2025 were excessive compared to our expectations for their upcoming financial results. 

Atlas expects Australia’s largest bank to deliver growth in earnings per share for FY2025 of around 4%, which seems relatively modest, considering the company is trading on 29 times forward earnings and whose growth is largely linked to Australian GDP growth. Similarly, while Wesfarmers is arguably the nation’s top retailer, the expected 1% earnings growth does not mesh with a company trading on 36 times forward earnings.

In the case of the large mining and energy companies, investors have fewer surprises on results day. This occurs as these companies release a production report in mid-July detailing the tonnes of iron ore or LNG produced, along with the average price received. This allows investors to back-solve for expected profits based on assumed production costs. In July 2025, the production reports were mostly benign except for the gold companies, some of which revealed production issues.  

Confessions 
The months leading up to the start of each reporting season are known as “Confession Season”, specifically from late May to mid-July, as companies become aware that they will not meet profit expectations and then “confess” their shortcomings. When business conditions are occasionally stronger than expected, the company will upgrade guidance before results day.  

The Corporations Act imposes continuous disclosure obligations on listed companies, which require companies to keep the market informed of any market-sensitive information that would materially impact the company’s share price. This is done to maintain market integrity and prevent some traders from using inside information on a company to the detriment of others, such as knowledge that a company’s earnings will be below expectations. For example, in June, Domino’s Pizza, IDP Education and Reece all announced that their earnings for the past six months would be substantially weaker than expected. 

When a company has already revealed its unexpectedly poor results before the reporting season, the focus on results day is not on the actual profit numbers but on a detailed explanation of what caused the issue and the management’s plan to address it. This often sees a rebound in the company’s share price when the “facts” are more benign than the “fears”. A retailer of car parts falls into this category for Atlas, and we look forward to having a robust discussion with management immediately after the results are released in late August. 

The Spread over the Month 
Companies listed on the ASX with a June year-end have until the last day of August to release their financial results; otherwise, they are suspended from trading on September 1st. However, results are not released evenly throughout the month, as companies tend to avoid reporting in the first weeks of the month, preferring instead to release them in the middle and last weeks. Consequently, there are days when several large companies report on the same day and often at the same time, which often results in the market making swift and poorly considered decisions about whether the results are good or bad. Frequently, we see a stock trading down on what Atlas considered to be a favourable result, only to see the company’s share price recover the following day after investors have digested the financial reports. This trend has been exacerbated by the impact of high trading “bots” in the market, utilised by high-frequency trading firms that are mostly influenced by momentum algorithms. A factor not imagined during my first reporting season in Canada over a quarter of a century ago.

The chart below shows the distribution of results during the upcoming reporting season, with the week starting August 19th being the heaviest. Tuesday, August 19th, will be challenging for many investors, with BHP, Reliance, CSL, Challenger, Hub24, Region, Sims Metals, and Woodside all reporting.  

 

On a busy day with multiple companies reporting simultaneously, we will skim through the results and look at the initial price movement at the market open to guide which companies to prioritise. The focus will then shift to those companies whose share prices are falling, either to understand the flaw in our investment thesis or to see whether the weakness is temporary and could represent a buying opportunity.

On the Day 
Generally, companies post their financial results with the ASX around 9 am; this gives investors an hour to digest the facts and figures before trading on the stock exchange begins at 10 am. 

During this period, we will review the profit and loss, balance sheet, and cash flow statements, comparing our forecasts to what the company actually delivered. Additionally, it is crucial to compare a company’s performance against its competitors. For example, in isolation, JB Hi-Fi or Coles reporting a slight decline in sales and a steady profit margin could signal a great result if Woolworths or Harvey Norman reported significant decreases in sales and shrinking profit margins earlier in the week. A better result than competitors indicates superior operational performance and a market share gain. 

Company management will then formally present their results to shareholders on a conference call or in person during the morning, generally between 10:30 am and midday. Occasionally, we see similar companies give presentations at the same time, which leads to questions to their investor relations teams about coordinating calendars. 

These presentations are directed towards the institutional investment community and are generally closed to the media and public. They can take 45 minutes to two hours, depending on the company’s complexity, the analyst’s interest, or the negative result that requires management explanation. Before the COVID-19 pandemic in 2020, these events were held in person at a hotel auditorium or the company’s offices, which allowed for some discussion with the management team afterwards. However, in 2025, most companies (except a few financial companies) will host the presentation online. Institutional investors appreciate this change as there are often days when several companies report, some at the same time. 

During the call, the management team details the factors contributing to the profit result and explains any potentially contentious issues. The most informative part is always the question-and-answer session, which allows investors to gauge management’s confidence in addressing the most controversial issues from their financial accounts. 

Typically, it will only be the sell-side analysts asking management questions, with the large institutional investors saving their questions for behind closed doors. The problem with this is that, in addition to writing research, some sell-side analysts want to protect their relationship with the company and maintain a good relationship for future lucrative investment banking deals. Maintaining a good relationship with company management has become increasingly important, as investment banking deals, such as capital or debt raises, are far more profitable than the meagre brokerage fees paid to buy and sell shares. Consequently, a sell-side analyst has fewer incentives to skewer a management team or institute a sell call on a company. Frustratingly, this can sometimes result in soft questions being served up for management or avoiding the hard questions when management has made mistakes. 

After presenting the results, Atlas will typically have a brief discussion to assess whether there have been any significant changes to our thoughts and to discuss the market reaction. The immediate market reaction can often be misleading, as most trading on results day is conducted by hedge funds or high-frequency algorithmic trading, which is driven by computers rather than long-term, fundamental investors.

Immediately Afterwards 
Over the following week, the company will organise individual one-hour meetings with their largest institutional shareholders in Australia and overseas. Before these meetings, it is essential to be well-prepared, as this is frequently the best forum to determine whether you should buy more of a company’s stock or completely sell out. 

During our meetings with the management teams, we will generally seek clarity (on behalf of our investors) on specific issues that we feel weren’t covered to our satisfaction at the formal presentation. While some of these meetings can be quite hostile or very friendly, they are a valuable forum for both parties to give feedback on how our client’s capital has been managed in the past and how that capital should be employed in the future. 

After the management meetings and reviewing the financial results of a company’s competitors, Atlas is then in a position to determine what changes (if any) are made to our valuation of the company and whether the results have changed our investment thesis for owning the company. We will also look at the key themes emerging from the reporting season. For August 2025, this is likely to revolve around the health of the economy and the impact (if any) of Trump tariffs. 

Buy Hold Sell: 6 stocks with above-market yields (and 2 from the managers)

Plato’s Peter Gardner and Atlas’ Hugh Dive run the ruler over stocks with above-market yields. They also share a top pick each.

Buy Hold Sell: 5 ASX names built for income

Plato’s Peter Garder and Atlas’ Hugh Dive share what they look for in income stocks, before running the ruler over a handful of ASX names.

This article was originally posted on Livewire: Link Here The past year has been quite volatile for investors. August saw a sharp sell-off in global shares after a surprise hike in Japanese interest rates led to an unwind in the Japanese yen “carry trade”. This trade saw hedge funds that had borrowed in cheap yen having to sell high-yielding global shares to repay their loans. Following this, the markets recovered losses and ground higher on the back of the now laughable theory that the Trump presidency would be more business-friendly than the previous administration. From mid-February to April, the ASX collapsed by 14% on the back of very business-unfriendly trade policies from the USA, which seemed to vary by the week. However, the Australian share market was less impacted by vacillating US tariffs than other global markets due to the domestic focus of many of our companies. Indeed, in the last quarter of FY 2025, the ASX 200 was one of the better-performing markets, due to its perceived safe haven, led by the powerhouse CBA (+48%), which saw the most hated rally on the ASX. Despite what feels like a bruising twelve months for investors, the ASX 200 has enjoyed a relatively strong year, up +10% or +13.8% (including dividends). Surprisingly, a very similar return to what investors enjoyed in the 2023 and 2024 financial years. At year-end, many institutional investors cast an eye over the market’s trash to find some treasure to drive portfolio returns in the coming year. Invariably, several bottom-performing stocks will confound market expectations and stage remarkable comebacks! In this piece, we will examine the “Dogs of the ASX” in FY 2025, sifting through the market’s trash to find treasure, and assess how the 2024 Dogs performed. We will also rate Atlas’ picks from 12 months ago.

The Theory Behind the Dogs of the Dow Michael O’Higgins popularised a systematic investment strategy of investing in underperforming companies named “Dogs of the Dow” in his 1991 book Beating the Dow.  This approach seeks to invest like that of deep value and contrarian investors. O’Higgins advocated buying the ten worst-performing stocks from the Dow Jones Industrial Average (DJIA) over the past 12 months at the beginning of the year, but restricting the selection to those still paying a dividend.  Restricting the investment universe to a large capitalisation index, such as the DJIA or ASX Top 100, improves the unloved company’s chances of recovery in the following year. Larger companies are more likely to have the financial strength and assets to sell, as well as an understanding of capital providers (such as existing shareholders and banks) that can provide additional capital to allow the company to recover from corporate missteps or unfriendly economic conditions.  For example, over the past year, Mineral Resources bought some breathing room by selling its oil and gas leases to Gina Reinhart for $1.1 billion. Furthermore, larger companies tend to have more options when it comes to lenders, with the same embattled resource company having the majority of its debt on “covenant lite” fixed-rate US bonds.  A smaller company is more likely to have its debt held by domestic banks in short-dated facilities, with local banks being more likely to move quickly to recover a doubtful debt, which can have adverse consequences for equity holders. Retail Investors Have an Advantage   One of the reasons this strategy persists is that institutional fund managers often report their portfolios’ contents to asset consultants as part of their annual reviews. This process incentivises fund managers to sell the “dogs” in their portfolio towards the end of the year as part of “window dressing” their portfolio before being evaluated. Institutional fund manager selling of underperformers is especially prevalent in December and June of every year. The past year unusually did not provide any great examples of Dogs staging great recoveries, but in July 2022 a fund manager would have been having to vigorously defend why they owned Xero in their portfolio after had fallen -19% in the previous year (Xero’s share price rose +55% in the next 12 months). Similarly, in July 2023, owning contractor Downer EDI would have been a bold move after falling victim to accounting irregularities (gained +16% in FY 2024). Retail investors can afford to take a longer-term view on the investment merits of any company that may have hit a speed bump, as they are not swayed by asset consultants questioning short-term underperformance. Additionally, many underperformers see tax-loss selling around the financial year’s end, further depressing share prices in June. Often, the share prices of these underperformers rebound in the new financial year when this tax loss selling finishes and investors repurchase their shares. This is likely to be a bigger factor in 2025, with many investors looking to offset often very large capital gains realised by trimming CBA by selling poor performers from the past year. Dogs of the ASX in 2025   Over the past year, the Dogs from 2024 fell 30% and underperformed the ASX 200, marking the largest underperformance of the Dogs Portfolio since Atlas began analysing the series in 2011. Notably, in 2025, the “Dogs” contained no significant outperformers.

From the table above, not one of the ten “dogs” of 2024 outperformed the index; this is the first time this has happened since 2010. The pain continued for lithium miners, including Pilbara Minerals, IGO, and Mineral Resources, following further declines in commodity prices and mine shutdowns. Mineral sands producer Iluka faced the challenge of rising costs, production issues and weaker Chinese demand for zircon. The pain continued in FY25 for former high flyers and favoured “growth” stocks, Domino’s Pizza and IDP Education. Domino’s announced that it was closing stores in Japan, Europe, and Australia. However, the broader market was concerned about declining same-store sales, as consumers focused on healthier options rather than just price and portion size.  IDP Education had another rough year, with its share price now down 90% from its 2021 peak. University student placements and associated English-language testing volumes were impacted by restrictive international student policies in their key markets, including Australia, Canada, and the USA.  The company is in a challenging position, as it has limited influence over government regulations regarding immigration policy. Endeavour has continued to underperform in 2025 due to slower retail alcohol sales and tighter regulations around its gaming machines, a high-margin hotel business segment.   Our Picks From July 2024??   When making our picks twelve months ago as to which of the Dogs from FY 2024 would rebound over the coming year, Atlas’ class mark would be a “pass on a technicality”, probably a C+. We declined to pick a recovery in the lithium price due to the lack of owning a crystal ball. Similarly, Atlas did not select Domino’s to recover due to our lack of familiarity with the pizza markets in Japan, France, and Taiwan, as well as the associated costs of store closures. Similarly, in July 2024, we were cautious towards IDP Education after the Australian government increased international visa fees by 125%.  However, we did not identify any further adverse factors impacting the stock, such as UK student visa restrictions and the Trump administration’s attempt to block Harvard from enrolling international students. In July 2024, Atlas picked Lend Lease (+2%) and Sonic Healthcare (+6%) to stage recoveries in FY 2025. Although this technically occurred, and these two were the best-performing Dogs of the ASX in FY 2024, both of their share price gains underperformed the ASX 200’s return. What Does the Class of 2025 Look Like?   Looking through the list of 2025 underperformers, there are both some new and old faces on the list. IDP Education, Mineral Resources, Pilbara and IGO back up from FY2024, much to the chagrin of their shareholders. The key themes in the list of Dogs for the financial year 2025 are: 1. Commodity Prices – IGO, Pilbara Minerals, Fortescue, Whitehaven and Mineral Resources 2. Weaker consumer demand for non-essentials – Flight Centre, Reece and Treasury Wine 3. Adverse Government Regulation – IDP Education and Treasury Wine

Our Picks For FY 2026   In almost every year (except for last year), three or four companies in the Dogs of the ASX list will significantly outperform the market over the following year. Recency bias leads most investors to put too much emphasis on recent negative news and extrapolate this into the future, creating an investment case that the current unfavourable market conditions or poor management decisions will continue indefinitely. As always in selecting a share price recovery candidate for the next year, we generally look at companies whose current woes are company-specific rather than caused by factors outside the control of their management team, such as falling commodity prices or adverse government policies. Atlas’s picks for a recovery in the next 12 months are Mineral Resources and Whitehaven Coal. While both companies have been exposed to falling commodity prices that are beyond management’s control, both companies also possess near-term catalysts within management’s control that should see their share prices re-rate.  The completion of the resurfacing of Mineral Resources Onslow iron ore haulage road is scheduled for September 2025. This will enable the company to move towards achieving its nameplate capacity of 35 million tonnes and start reducing its debt load. While management cannot influence global lithium prices, they can resurface a road. We see that FY2026 looks brighter for Whitehaven Coal after management has made a number of good moves over the past year. In March, the company sold down 30% of the recently acquired Blackwater metallurgical coal mine to customers Nippon Steel and JFE Steel, and has taken costs out of the formerly BHP-owned asset.  A move that leaves the company effectively debt-free and paves the way for Whitehaven to lift dividends in August. Additionally, Whitehaven have recently started on an on-market share buy-back.

In the world of Australian equities, few names carry the gravitas of Commonwealth Bank of Australia (CBA). It’s the blue-chip darling of retirees, fund managers, and index-huggers alike. However, most fund managers are underweight the $300 billion banking behemoth, especially those that followed calls early last year by the sell-side analysts to sell the banks. As the share price continues its gravity-defying ascent, recently notching a record high of over $191, investors are left wondering: is this a triumph of fundamentals, or are we witnessing the makings of another valuation bubble? 

In this week’s piece, Atlas tries to unpack the forces at play, the implications for the broader market, and what this means for investors navigating a market increasingly shaped by passive flows and sentiment over substance.

Why do Fund Managers Hate This Rally
  The hatred of this rally in CBA’s share price among fund managers is due to selling down their positions in the bank over the past 18 months, which has then caused underperformance against the benchmark ASX200 index. When a smaller company experiences spectacular share price growth, it will have a minimal impact on the ASX 200; however, CBA has delivered a total return of 55% over the past 12 months, far ahead of the benchmark return of 13%. With an average index weight of 10% over the last 12 months, if fund managers had not owned CBA at all, they would have to find over 3.5% of fund performance elsewhere to match the index performance. Not an easy task. 

As a disclaimer, Atlas’ stance is now one of strong dislike not hatred towards the CBA rally, after being slow to reduce our holdings. The Atlas Core Australian Equity Portfolio has sold three times over the past six months to move to an underweight in CBA: in December ($156), April ($167), and June ($181).  Each time prematurely patting ourselves on the back thinking that we had picked the share price peak. 

Price Earnings Expansion Rally
  The recent rally in the share price of CBA has not been accompanied by higher earnings, but rather the same earnings becoming more expensive for investors to purchase. As you can see from the table below, CBA’s price-to-earnings multiple expanded in 2024 and 2025 from its long-term average of 15 times, tracking the move in the share price from $100 to $191. 

The bulk of CBA’s profits come from loans made to households and corporates, which, unlike luxury consumer goods like Louis Vuitton handbags or Glenfarclas 25-year-old single malt whisky, have no brand premium attached. Despite extensive advertising, borrowers remain indifferent about which bank to choose for their mortgage funding. Indeed, CBA operates in a domestic banking market with limited credit growth in Australia, selling an identical product to that offered by four other competitors (now including Macquarie), all of which have the same cost of production (capital). By way of comparison, CBA’s competitors (Westpac, ANZ and NAB) trade on a average PE ratio of 15.5 times with a 4.8% yield. 

This current rally has seen CBA move into the world’s top ten most valuable banks and become the first developed market bank in history to trade at a multiple greater than 30 times earnings. 

Passive Flows Driving the Market
  One of the key drivers behind CBA’s meteoric rise has little to do with its earnings or strategy. Instead, it’s the sheer weight of money flowing into passive investment vehicles. As the largest constituent of the ASX 200, CBA receives the lion’s share of every dollar that flows into index-tracking funds, such as Vanguard’s VAS or Betashares’ A200. This creates a self-reinforcing loop: rising prices attract more inflows, which in turn push prices higher. It’s a virtuous cycle—until it isn’t. Currently, CBA comprises 12% of the ASX 200, the highest weighting of a single company in the ASX 200 since News Corp reached 15% during the Tech boom of 2000. BHP also hit 15% in February 2009, although this was more a result of a stable share price in the face of other large companies experiencing meltdowns during the depths of the GFC. Not dissimlar to Steve Bradbury’s performance on the ice in Salt Lake City in 2002!

While CBA current dominance of the ASX 200 is quite significant, there have been more extreme cases in other developed stock markets. I started my career in Canada working for a large Vancouver-based fund manager and unfortunately, that coincided with the “dot.com” boom. During July 2000, telco stock Nortel peaked at 35% of the TSE 300 Composite, with the tech behemoth moving the benchmark index by itself. Now that was a truly hated rally, with many fund managers including the one that I worked for having a 10% position limit on any one stock in the portfolio! 

The shorts have already been burned
Shorting the Australian banks has historically ended up as a widow-maker trade. A “Widow-Maker” trade in the hedge fund world is a short-selling of an overvalued asset that may make sense intellectually. Still, the share price continues to rise despite the bearish investment thesis. As it continues to rise, the short seller is forced to post ever-increasing amounts of cash into their margin account, increasing the chance that the fund manager has a heart attack or gets fired. 

US and European fund managers have been systematically shorting Australian banks based on the seductive story that they are overvalued compared to their domestic peers. International investors have historically made mistakes by assuming that Australian banks operate in the same regulatory environment as their domestic banks. The basis for their thesis is that four banks from a small backwater in the financial world have little business, being amongst the largest in the world.

Short interest in CBA has been relatively low in recent years, peaking in December 2023 at 1.8%, and currently stands at 0.88%. CBA’s rising share price would have seen continual margin calls being issued to short sellers, until the short seller gives up and closes out the position by buying back the CBA shares on the market. 

Whilst this 0.9% decrease in the outstanding stock being sold short may seem insignificant, if the average purchase price for hedge funds covering their short positions were $140, it would equate to over $2.1 billion in hedge fund managers buying CBA stock with gritted teeth. 

This has all been achieved without CBA turning on the buyback machine
  The last time CBA bought back any shares from its $1 billion on-market buyback was on November 2024 at $152 per share, leaving $700 million of buyback outstanding. CBA management is incentivised to return excess capital to shareholders as bank management teams are awarded bonuses based on their return on equity (ROE). The ROE increases as the bank buys back shares, reducing the equity divisor on its return. In CBA’s February result, the bank announced that it had a capital ratio of 12.2% well above the minimum capital ratio set by APRA of 11%. CBA’s management deciding not to repurchase their own shares, despite having financial incentives to do so, indicates what company “insiders” think of the bank’s share price.  

Why would global managers be buying CBA?
The terrible historical offshore expansions conducted by the other major Australian banks, which saw billions of shareholders’ value eroded, have led CBA to sensibly restrict its operations to the Australian domestic banking market. Whilst this is a limited market opportunity, it does create a lot more certainty and consistent and predictable earnings that are only exposed to a small subsector of the global economy. So, in a world of rising geopolitical risk and economic uncertainty, investors often gravitate toward quality and stability. CBA’s conservative balance sheet, strong capital buffers, and predictable dividend stream make it a safe haven for global investors. Indeed, earlier in June, a Texas-based investment manager, Fisher Investments, revealed that they had spent $1 billion buying CBA shares over the previous two weeks, at a level we estimate to be around $170 per share.

Our take:
While Commonwealth Bank has long been the “Steven Bradbury” of Australian banking—winning by avoiding the missteps of its peers—its current valuation appears to be running well ahead of fundamentals. At over 30x forward earnings and a dividend yield below the broader market, investors are now paying growth-stock multiples for what is, in essence, a mature, low-growth stock with a highly leveraged balance sheet and limited to no international expansion prospects.

Historically, banks like CBA have traded at a premium due to their robust balance sheets and consistent dividend payments. But today’s premium feels more like a product of passive fund flows, index weightings, and a scarcity of large-cap alternatives than a reflection of earnings growth. Real dividends, when adjusted for inflation, remain below 2015 levels, yet the share price has nearly doubled since then.

As we’ve seen in past decades—from Japanese megabanks in the ’90s to US giants pre-GFC—being the world’s most valuable bank is often a prelude to underperformance. While CBA remains a high-quality franchise, the current price implies perfection. And in markets, perfection rarely lasts, and there will be many fund managers in June 2025 praying for the bank’s share price to correct to more rational levels.