By Paul Basha, Equity Strategist at Bell Potter Securities
On behalf of Tandem Securities (part of Bell Financial Group ASX:BFG).
Key takeaways
- Earnings upgrade cycle accelerating: ASX200 FY26 EPS growth now tracking ~14%, up from 9.5% at season start. Resources (+25%) and Banks (+7%) are doing the heavy lifting and revision momentum is the strongest since mid-2022.
- An unforgiving market: Misses punished ~5% on result day, with large caps hit hard. Beats rewarded just 1%. Good news appeared priced in, execution failures were not forgiven.
- Result-day volatility is structural, not temporary: Over a dozen ASX100 companies moved more than 10% on result day, a pattern that was almost unheard of pre-2020 but is now recurring. Elevated index concentration in BHP and CBA amplifies the moves. Positioning into results matters more than it used to.
- Banks and Miners were the clear winners: Both sectors beat expectations, with banks delivering improving margins, strong credit growth and low bad debts. Miners outperformed already-upgraded forecasts, with spot prices enabling capital management and balance sheet repair, not M&A.
- Three themes reshape positioning: Rate cycle (RBA hiking, value and resources favoured), AI adoption (from narrative to measurable P&L impact), and the capex super cycle (copper, data centres, infrastructure) are converging and reinforcing each other.
February reporting season delivered close to the strongest earnings pulse in a decade, beats ran at nearly 2x misses, guidance upgrades outpaced downgrades, and ASX200 FY26 EPS growth is now tracking ~14%. The market was unforgiving. Misses cost an average of 5% on result day; beats gained just 1%. Three forces now shape positioning from here; the RBA back in hiking mode, AI transitioning from narrative to earnings driver, and a structural capex cycle sustaining commodity prices and keeping domestic inflation elevated.
Scorecard is in
February reporting season delivered a clear improvement in the earnings pulse. EPS beats exceeded misses by approximately 1.9x, revenue beats ran at over 1.5x, and dividends surprised to the upside. Guidance upgrades outnumbered downgrades, a cleaner signal of management confidence than backward-looking beat/miss ratios alone. Outside the post-COVID recovery periods, this was arguably the strongest season in a decade.
The message from markets has been clear. Missing is not an option. Misses were punished with average declines of around 5% on result day, with large caps bearing the worst. Even minor blemishes that might have been overlooked in the past saw investors heading for the exits. Beats were rewarded with an average gain of just ~1%, reflecting how much good news was already priced in.
Banks and miners were the winners this reporting season. Strong results from the major banks were a surprise, with improving margins, strong credit growth and low bad debts driving meaningful upgrades, and all banks showing similar trends. Miners delivered above expectations (which were already upgraded prior to the season), with spot prices allowing increased capital management, deleveraging and M&A appetite was restrained.
Result-day volatility continues to run at structurally elevated levels, with over a dozen ASX100 companies moving more than 10% on result day. This was almost unheard of pre-2020 but has become a recurring feature. Part of it is mechanical, with BHP and CBA at an all-time combined index weight. But it also reflects a market that is heavily positioned and quick to reprice.
Outside post-COVID recovery periods, this was arguably the strongest reporting season in a decade, yet the average beat was rewarded with just 1%
Earnings pulse – Upgrading in large
ASX200 FY26 EPS growth is now tracking at approximately 14%, up from 9.5% at the start of the season and ~3% after August. FY27 estimates have also been revised higher. Revision momentum is the strongest since mid-2022. Resources are doing the heavy lifting at around +25% FY26 EPS growth, with more to come at spot commodity prices. Banks are the second contributor at roughly +7%, with further hikes a direct NIM tailwind. Industrials ex financials are growing at a more modest pace.
The key risk is around the sustainability of earnings levels. The earnings revision cycle is running at an intense pace, but the bulk of the momentum is being driven by miners. That means commodity prices need to hold or move higher to sustain the current upgrade trajectory. At spot prices there is still upside to consensus, but a meaningful pullback in iron ore or copper would stall the aggregate revision story quickly. This is not a base case, in-fact we think upgrades are likely to continue, but it is the main risk to the constructive earnings backdrop.
FY26 EPS growth has gone from 3% post-August to ~14% today. Resources are doing the heavy lifting but commodity prices need to hold for the story to stick which is currently our base case.
On valuation, the forward PE has eased roughly two turns from its mid-2025 peak. At around 18.5x, the ASX200 is still rich versus its ~15x long-run average, but earnings are catching up to prices. The de-rating has not been even. Growth stocks have seen the sharpest PE compression, while Resources and Banks have re-rated as earnings improved.
Disclaimer:
Tandem Securities, Tandem Clearing and Desktop Broker are registered business names of Third Party Platform Pty Ltd (TPP), ABN 74 121 227 905, Australian Financial Services License (AFSL) 314341. TPP is a Market Participant of ASX Limited, Trading Participant of Cboe Australia Pty Ltd, Settlement Participant of ASX Settlement Pty Ltd and a Clearing Participant of ASX Clear Pty Ltd. Tandem Capital is a registered business name of Bell Potter Capital Limited (BPC), ABN 54 085 797 735, AFSL No. 360457. BPC is licensed to offer Margin Lending Services. Tandem Securities, Tandem Capital, Tandem Clearing and Desktop Broker do not provide investment advice, information provided in this document has been prepared without consideration of any specific clients financial situation, particular needs and investment objectives. It is general information only and does not constitute investment or other advice.
