Housing slump winners, losers emerge from Australia’s earnings

[SYDNEY] Companies exposed to Australia’s housing downturn are facing a test this earnings season, as high interest rates and tax reforms divide the stock market into winners and losers.

Expectations for earnings growth on the benchmark S&P/ASX 200 Index remain muted after reaching a fresh peak in April, data compiled by Bloomberg show, with analysts warning that there is limited room for upside. With the reporting season about halfway through, investors are now looking for further evidence of how companies are navigating the tougher economic backdrop.

The domestic economy has been particularly tough on companies tied to household spending, as high borrowing costs and inflation worries weigh on consumers. Changes to property tax settings are adding another layer, potentially shifting demand away from existing investment properties and toward new homes. That divergence is already showing up in many company results.

Here are the standouts of Australia’s earnings season so far:

Residential property developers

Residential property developers Stockland and Mirvac Group both reported higher profits and are seen benefiting from tax changes that exempt new builds from a reduced capital-gains discount.

The results were “materially stronger than the market anticipated”, wrote Citigroup analysts. The surge in their share prices was also aided by a rotation from other sub-sectors like retail real estate investment trusts (Reits), they added.

Investors will be awaiting results from retail developers Centuria Capital Group and Charter Hall Group.

Furniture, household appliance retailers

By contrast, retailers that are linked to new home-buying demand have seen pressure in their margins.

Electronics seller JB Hi-Fi and kitchen appliances maker Breville Group saw steep share selloffs after earnings and sales disappointments.

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The sharp deterioration in JB Hi-Fi’s sales momentum “suggests the softer macro backdrop amid RBA (Reserve Bank of Australia) rate hikes, above-trend inflation, volatile oil prices and subdued consumer sentiment is increasingly weighing on discretionary spending”, wrote Canaccord Genuity equity strategists in a note.

Stocks in focus for the remainder of reporting season are Bunnings owner Wesfarmers, Harvey Norman Holdings and plumbing services firm Reece.

Bank mortgages

Australia’s heavyweight banking sector has also taken a hit from softer home-buying sentiment, with all of the so-called Big Four lenders revealing declines in mortgage applications.

“Trends and commentary in the major banks’ reporting season support our view that there is downside risk to FY27 earnings from a slowing mortgage market, rising competition, and weaker credit quality,” according to Morgan Stanley analysts.

Commonwealth Bank of Australia was the only lender among its major peers to report full-year results in August, while Westpac Banking Corporation, ANZ Group Holdings and National Australia Bank report in November. BLOOMBERG