The August reporting season offered investors many surprises, and it was the most volatile from an intraday perspective as investors remain hyper-focused on earnings upgrades and downgrades, according to co-portfolio managers of the SGH Australian Small Companies fund, Rory Hunter and Phillip Li.
“Reporting seasons are becoming increasingly volatile. This was the most volatile we’ve seen from an intraday perspective. Those companies that missed expectations by single digits were instantly hammered, while those companies that managed to deliver even marginally better earnings and guidance, were rewarded on results day,” says Mr Hunter.
“Larger and more liquid stocks that have typically been a safe place for investors to hide weren’t any more immune to this volatility. Companies like Woolworths (ASX: WOW) and CSL (ASX: CSL), both experienced double digit down days following results that disappointed the market.”
Mr Hunter adds that some companies were rewarded for growth in capital expenditure. “For those companies that missed short term expectations because of investing heavily into growth capex, the market has been willing to swallow the associated FY26 downgrades.
“This is a sign that the market is now increasingly short of growth opportunities, as the more mature and established companies can only deliver growth through inorganic but riskier means such as M&A. For those companies that are still able to identify and capitalise on attractive organic opportunities to reinvest in, the market appears somewhat willing to reward them.
“We also witnessed a broadening out in equities. With the ASX Small Ords more than tripling the performance of the ASX100 in the month of August alone, it’s increasingly clear that investors are now willing to venture further down the market cap spectrum in search of better risk return profiles. This is a very healthy sign for ongoing small cap outperformance,” says Mr Hunter.
Despite the volatility, Mr Li says a positive surprise were the results from companies in the consumer and property sectors, which the SGH Australian Small Companies fund has been favourable about for several months.
“The consumer sector has had such a great run since the April lows going into reporting season, so to see continued strength on already lofty valuations was a pleasant surprise. The market has been particularly excited by the FY26 year-to-date trading updates which have generally come in ahead of expectations,” he says.
“We’ve been positive on the property space for the past 12 months, and this was positively reflected in earnings results. The market has now caught up and finally taken notice of the property sector, we demonstrated by the clear rotation of capital back into the sector.
“Centuria Capital (ASX: CNI) was a key standout for us, delivering a strong result and beating consensus. It is forecasting 10 per cent earnings growth for FY26, which in our view is a very achievable target. The market, however, continues to underappreciate the growth potential of this funds platform during a rate easing cycle versus its larger peers that trade on higher multiples,” says Mr Li.
Looking to other sectors in the market, Mr Li says a common theme from the resources sector, and even in healthcare and property is the persistent rise in the cost of doing business, particularly driven by labour.
“Despite slight easing in the labour market, skilled trade shortages remain a persistent issue and it’s clear that the availability of labour remains uneven. We continue to hear a similar issue within the healthcare space, particularly in regional areas, as well as from property developers that operate in Queensland as the compete against large scale government-backed infrastructure projects. Any government initiatives to expedite selective skilled trades migration will clearly be welcomed by corporate Australia.
“Perhaps to nobody’s surprise given the fast-changing tariff landscape, we are hearing from companies that their forecast of the estimated impact of US tariffs on their business and earnings is at best a point-in-time estimate. The response is almost always ‘your guess is as good as mine,” says Mr Li.
Vault Minerals (ASX: VAU) is a company recently added to the portfolio that Mr Hunter says shows exciting potential.
“Vault Minerals FY25 result has been very well received, highlighting its transformation into a highly cash-generative gold producer, now returning capital to shareholders through a newly announced 10 per cent buyback while continuing to invest in growth. This combination underpinned strong market sentiment and drove a share price re-rating. With the hedge book set to roll off in the near term, we see scope for this positive momentum to continue,” says Mr Hunter.
