The best and worst results this reporting season

David Wilson: Varied. You had results literally all over the place. You had some good results where you had quite extreme positive reactions and then you had others with quite negative reactions. So varied is how we'd sum it up.

David Wilson: In most cases, you've incorporated it into your process and you try and be aware of it. You don't try and really trade on the back of it too much. But if there's an opportunity where you think there's an extreme move, then you take advantage.

Michael Wayne: Downgrades. So despite the fact that there've been more earnings beats than misses, the brokers have come in pretty hard and they've cut a lot of the outlooks for these businesses. So the market was expected to grow at 5% pre-earning season for FY25. It's now expected to grow at 3%. So downgrades.

Michael Wayne: Yeah, definitely. Management have been very cautious. Probably understandable given the environment that we're transitioning through and the uncertainty around inflation and interest rate cuts even if the cuts do eventuate. So, management have been very, very timid on the outlook.

Major themes that have emerged over the last month 

Michael Wayne: Well, the headwinds continue to be costs, whether that's labour costs, whether that's the cost of inputs. So that continues to be a strong headwind facing a lot of companies, but there've been some tailwinds as well. We've seen the growth businesses do particularly well despite the chopping environment and despite lofty valuations. As a cohort, they seem to have delivered results that have beat more than missed relative to many of their peers.

David Wilson: I think what we saw in terms of tailwinds is that you saw quality companies generally outperform the lower-quality peers. So you look at the mining sector, BHP (ASX: BHP) and Rio Tinto (ASX: RIO) did a lot better than the other mining companies and even the oil and gas companies as well. And similarly, you look at the earnings from the likes of REA Group (ASX: REA) and CAR Group (ASX: CAR), they certainly outperform the likes of SEEK (ASX: SEK) and Domain (ASX: DHG).

David Wilson: Good management and good quality businesses.

David Wilson: We saw it particularly in the mining sector. As Michael said, you saw it in the resources space where costs and CapEx did sort of blow out appreciably. It was a noticeable headwind across the mining stocks and the oil and gas companies as well.

David Wilson: We didn't do a lot through reporting season, unfortunately, for our broking friends. But we did take a little bit off the top of the banks and just sort of sprinkled it across the rest of the portfolio. The banks are performing well, with sound ROE, and sound businesses, but valuations did get a little extended, so we took a little bit off the top there.

David Wilson: Yeah, we don't really take a strong view on market leadership. We are building portfolios, but I think the bank stocks are generally fine in terms of the results they've delivered. But I think valuations, you have to recognise, did get a little extended.

Michael Wayne: Not so much based on the tailwinds or headwinds for the markets, but generally speaking, if a company reports well within the portfolio, we do tend to back that and actually put some more money to work in that name. Likewise, if a company reports poorly and it looks like the outlook has changed in a sustained way, we'll look to exit that business. But let the winners run, even add to some of those winners and try and maybe cut some of those losers quickly.

Michael Wayne: Yeah, as it's turned out, that's definitely been the case. We do think that the outlook for many of those businesses, if anything, has enhanced somewhat. Obviously, you can't just pay any price for growth, but growth at reasonable prices, as lame as it sounds, still has a valid place in many portfolios.

Michael Wayne: Yeah, growing dividends for us are always the key thing that we look for. It's not so much the dividend yield today. But if that dividend per share in two or three years can be substantially higher than where it is today, that's always a positive sign for us. There's one business, a small-cap quality name that we've discussed before on Livewire, XRF Scientific (ASX: XRF). That's a company that once again delivered a very good dividend per share growth number, and that dividends now doubled in the space of three years. So if you can identify similar businesses across the portfolio, that's something that we're looking for.

David Wilson: We're a little bit sceptical. We often term dividends and capital management as the last refuge of the desperate, where if the company's in trouble or under a bit of pressure, earnings under pressure, often they'll go and pay shareholders to wait either delivering them some extra dividend or a capital return. So we can be sceptical of it, but we do like to see efficient capital management. So if you've got franking, the company should pay it out. We would rather they maintain their capital process and maintain the discipline without going and wasting it on acquisitions.

David Wilson: Just question it. Be sceptical.

David Wilson: Yeah, it's a pretty straightforward one. It's Goodman Group (ASX: GMG). The market was a little bit disappointed on the day because it gave guidance that was below consensus forecasts. But the fact is that Goodman has a real track record of actually delivering upgrades on their initial guidance throughout the year. And I think the market got a little bit caught on the fact that it didn't quite meet that-

David Wilson: Yes, that's right. And some years more so than others. And I think this time around they perhaps did a little bit more so than we thought was warranted.

David Wilson: Goodman Group has a fantastic property portfolio. It's internationally diversified. It's in the key sort of cities around the world. And you've also got the upside from data centres as well.

Michael Wayne: Dusted off Credit Corp (ASX: CCP), which seems to come and go-

Michael Wayne: Yeah, it's been a hard decade and a half. It has its moments where it's a shining light and then it's sort of down in despair. It's been in that phase recently with higher interest rates and higher inflation, making it very difficult for people to pay back their debts in arrears. But there are some signs, looking at Credit Corp's result and some of the competitors also in the US, that conditions are improving and we might be coming into a cyclical, more beneficial era for the company. So it's relatively cheap to the long-term history. It looks like the collections process is improving, that sort of backdrop. The pricing of many of these debt ledgers has improved as well. So we're quietly comfortable building a position in Credit Corp.

Michael Wayne: The best result for the season from our standpoint was Pro Medicus (ASX: PME). This is a business that trades on nosebleed multiples, so it needs to do very well to justify those prices, and it did so. Net profit came in better than expected. Margins were better than expected. Cost growth was constrained. And they've managed to broaden their outlook somewhat. They used to historically service mainly the university-aligned hospitals. They're now moving into the bigger end of town in the US servicing, I think 11 of the top 20 hospitals there. So contract values continue to expand. So that for us seems to be a business that continues to deliver despite the lofty valuation.

David Wilson: At least match it, I think, because Pro Medicus is a wonderful company. But the company that we think did exceptionally was WiseTech Global (ASX: WTC). Revenues exceed a billion dollars. Their guidance is heading towards an EBITDA of nearly $700 million. Importantly, they signed up Nippon Express. And so they've now got contractual relationships with 14 of the top 25 forwarders. Those guys literally are Microsoft for the global freight forwarding market.

Michael Wayne: Audinate (ASX: AD8). So this is a business I've been harping on about on Livewire for a couple of years. I've got to take my medicine. I came into the office and it didn't look good at all. Essentially, a growth business trading on very lofty multiples won't be growing in FY25. There's been a lot of pulled-forward demand after the COVID backlog. That backlog is now cleared. It's just not as bright a picture as it once was. It's a top-five holding in our fund, but the outlook is improving from FY26. It just might take a little bit of time for the market to come back in favour.