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As Australia’s reporting season unfolds, a notable pattern is emerging: high-flying stocks, despite posting solid results, are facing significant market sell-offs. This trend is particularly evident among industry stalwarts like JB Hi-Fi, QBE Insurance, and Commonwealth Bank, which have previously established reputations for exceeding expectations and delivering stable dividends.
JB Hi-Fi: Valuation Concerns
JB Hi-Fi (ASX: JBH) reported underlying numbers that largely surpassed market expectations, including an eagerly awaited special dividend. Key figures included:
- Sales growth of 10% to $10.6 billion, exceeding the $10.49 billion estimate (1% beat).
- Gross margin dropped slightly by 21 basis points to 21.99%, compared to the estimated 22.13% (14 basis points miss).
- Net profit after tax (NPAT) rose by 5.4% to $462.4 million, albeit below the $472.2 million estimate (2.1% miss).
- Earnings per share (EPS) increased 5.4% to 423 cents, falling short of 431 cents (1.9% miss).
- A full-year dividend climbed 5.4%, reaching 275 cents per share along with a special dividend of 100 cents.
Interestingly, while the stock opened positively on August 11, it experienced a drastic decline, dropping as much as 9.7% by market close.
An analysis of JB Hi-Fi’s earnings over the past three reporting periods reveals the market’s excessive focus on valuation. Although the first two reports were received positively, the third encountered a different response due to valuation shifts:
- For 1H24, the company traded at a modest 13x PE amidst a struggling retail sector.
- In the FY24 report, after a 20% share price increase, it traded at 16.8x PE, aligning with historical averages.
- However, in 1H25, the stock surged to a high of 24.4x PE, around 50% above historical norms, prompting a negative response even with strong performance metrics.
QBE Insurance: Price Deceleration
QBE Insurance also delivered robust results, including:
- Gross written premiums rose by 6% to $13.82 billion, outpacing the estimate of $13.76 billion (0.4% beat).
- A combined operating ratio of 92.8%, better than the expected 93.1% (0.3 points beat).
- Adjusted net profit increased by 28.3% to $997 million, significantly exceeding the $841.3 million forecast (18.5% beat).
- An interim dividend up by 29% to 31 cents per share, although slightly under the expected 31.9 cents (2.8% miss).
Despite these promising results, QBE’s stock plummeted by 8.7%. Unlike JB Hi-Fi, QBE’s valuation was not the main factor affecting performance; the stock traded at a reasonable 11x PE, marginally below its historical average. Still, after a nearly 50% increase in share price over the year, expectations factored in a slow down in premium rate increases, which fell to just 2.1%—down from 6.3% a year ago and 10.2% in FY23’s first half.
Commonwealth Bank: The Anticipated Correction
The Commonwealth Bank of Australia (CBA) faced an expected correction, trading at a staggering 33x PE despite limited growth prospects. Its results were broadly in line with forecasts:
- NPAT rose by 4% to $10.25 billion, matching expectations.
- Total dividend increased by 4% to $4.85 per share, in line with the $4.84 estimate.
- A cash payout ratio of 79%, atop its target range.
- Net interest margin edged up 9 basis points to 2.08%, aligning with estimates.
- CET1 ratio remained stable at 12.3%, slightly beating the 12.2% forecast (10 basis points beat).
- Return on equity dipped by 10 basis points to 13.5%, missing the 13.7% estimate (20 basis points miss).
Similar to its counterparts, CBA stock opened lower and ultimately closed down by 5%.
Conclusion
The ongoing ASX reporting season showcases the resilience of earnings across various sectors. However, the market currently exhibits little tolerance for merely meeting expectations, particularly for stocks trading at elevated valuations. As demonstrated by JB Hi-Fi, QBE, and Commonwealth Bank, there is an evident requirement for stronger earnings beats, upward guidance, or notable growth initiatives.
Ultimately, the companies discussed have presented solid numbers. This may suggest a necessary market correction, leading to more stable performance and potential recovery to previous levels as the landscape continues to evolve.
