Biggest positive surprise

Nathan Zaia: I thought Suncorp's result was really good. Most of the trends were sort of what we expected, but it exceeded our expectations pretty much across the board. So, from the gross written premium growth, a lot of that is coming from premium rate increases, which I think everyone is aware of. But they also had decent volume growth, which I think is reassuring. So, they're not just pushing up prices to an extent that it would impact their attention and ability to win new customers. So, I think that was really pleasing to see. 

Angus Hewitt: Lottery Corp's result was probably the biggest surprise on the upside. And that was really driven by favorable jackpot sequences. So, the $200 million Powerball jackpot in February was a one in seven-year event. It accounted for 7% of Lottery Corp's turnover, which means this was a really good year. Statistically, this isn't going to happen again. And we're expecting a more normalized 2025. 

Johannes Faul: There's always some impressive stuff coming through. The one though that really beat our expectations stood out was Coles. They managed their theft issue that they had for a while really well and much faster than we were expecting. The outcome of that was slightly better earnings than we were forecasting. So, I would say that was one of the ones that stood out where we were positively surprised like, hey, they've done a good job here.

Biggest disappointment

Zaia: Private health insurance, NIB. I mean, they disappointed in a few areas. I mean, the bottom line was well below what we expected. But even if you add back one-off acquisition and integration costs, still a bit soft. And it was really across policyholder growth numbers coming in below where we expected. And also, their claims expenses rose a lot faster than we thought they would. And so that really crunched their insurance margins in that private health segment. 

Faul: We were surprised on the downside. And this is not looking back at the last fiscal year. But in the trading update, that was weaker than what we had been expecting, was Endeavour, so the liquor retailer. And for the first few weeks – and it's still early days – but for the first few weeks of this new fiscal year we're in, their sales have been weaker than what we were expecting. We were expecting to see a bump of consumer spending starting in July from all the fiscal stimulus that's coming our way. We haven't seen that yet in liquor, surprisingly. We still think it's going to feed through as we progress through the year. But I would say that raised an eyebrow on the downside in terms of a bit weaker than what we were expecting. 

Hewitt: Tabcorp was the most disappointing result. Earnings were a little worse than our expectations, but the outlook was a fair bit worse. And it's really driven by three things. The first is on the actual market itself. So, the weak discretionary environment is weighing on wagering turnover in general. Second is competitive pressures, which continue to hurt market share with the likes of Sportsbet and Ladbrokes, always looking for ways to take Tabcorp's market share. And third is on costs. So Tabcorp's cost out program, it's really been undone by mostly labor cost inflation and also higher regulatory costs. So, the targets they have for 2025 have been effectively scrapped.

Biggest overreaction

Zaia: So NIB's soft FY '24 result resulted in a really heavy sell-off. And I think that is a bit of an overreaction. The main cause, I think, is insurance margins. So, during COVID, people were putting off hospital procedures and even just going to the dentist or the physio and that sort of thing. So, claims have been artificially low. So, everyone expected that to normalize over time. And so, their insurance margins would come down. And the management team have been saying, we expect margins to normalize again over time. And I think that caught people out that it happened so quickly. We always thought it was going to come. I think maybe the market is overreacting and thinking that it gets materially worse, which we don't expect. 

Faul: I would say that the one where I was surprised was Wesfarmers. And what happened there is, they also had a soft start, a softer start to the year than what we were expecting and especially at the biggest business Bunnings which we all know and a lot of people love. And what we've seen there is just some moderation in their sales momentum. It's very easily explainable by the very weak commercial housing market that we're seeing. We're seeing new starts very soft at the moment, slight softening and slight moderation of sales momentum. The share price or the stock reacted quite significantly to that news. But it just highlights how much that stock is priced for perfection. 

Hewitt: The biggest overreaction in my list, I think, was a2 Milk. So, shares were down more than 20% at some point during the day of the results. And we think this really misses the forest for the trees. The result itself was really strong. Earnings were up 8% and that's above our forecasts. Market share in the crucial Chinese infant formula market continues to grow. And brand metrics, which are already really healthy, are improving. And that really underpins our view that a2 has a narrow economic moat. And that's underpinned by the fact that consumers are willing to pay up for the a2 brand. Temporary operational constraints are hurting the near term. So, at Synlait, their manufacturing partner, we're seeing manufacturing delays there. We're also seeing higher freight costs as a2 needs to rely on air freight rather than ship freight, which is much cheaper. But we expect this is temporary. A lot of this should be really worked out by the first half of fiscal 2025. And the longer-term story is much more attractive.

Companies mentioned

  • Suncorp (SUN)
  • The Lottery Corp (TLC)
  • Coles (COL)
  • NIB Holdings (NHF)
  • Endeavour Group (EDV)
  • Tabcorp (TAH)
  • Wesfarmers (WES)
  • The a2 Milk Co (A2M)

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