Australia's largest companies face another year of falling profits
In its latest investment note, Morningstar said the top end of the Australian market could be overvalued, with earnings not keeping up with share price growth.
Morningstar predicts the ASX 200 'earnings recession' will continue with Australia's largest companies profits falling by one per cent in the 2025 financial year.
This follows falls of 10 per cent in 2023 and four per cent last year.
Morningstar market strategist Lochlan Halloway said while the other index continued to rise, Australia's largest businesses — from an earnings point of view — were actually falling.
'Eventually, something's got to give — either earnings catch up to lofty prices, or valuations rebase to reflect the reality of slower growth,' Mr Halloway said.
'This disconnect between prices and profits goes a long way to explaining why valuations look so stretched at the top end of the market.
The warning comes as businesses are set to release their June 30 results throughout the month of August.
According to Morningstar, the results could be bleak with the ASX 20 earnings tipped to fall by a cumulative 15 per cent in the three years until 2025.
Despite the businesses themselves falling, share prices for the ASX 20 as a collective is up 30 per cent over the same period.
By Morningstar's estimations, the ASX 20 is currently running at a premium of about 20 per cent compared to fair value — a level that has rarely been seen in the past decade.
Mr Halloway said the main culprit would be the mining stocks, which would once again soften due to weaker commodity prices following the post-Covid boom.
'Financials, our largest sector, should deliver modest growth, but mid-single-digit gains aren't nearly enough to offset the miners' slump,' he said.
The call comes as the Australian sharemarket pushed to a new record high over the past week, with markets ignoring tariff uncertainty and weaker local economic data.
As of 3.30pm on Friday, the ASX was up 2.2 per cent for the week — its strongest gains since April 10.
AMP chief economist and head of investment strategy said the Australian market jumped on the news of softer jobs data, which left the RBA on track to cut rates again in August.
'With unemployment breaking to its highest since the pandemic, and June jobs data showing broad-based weakness, it's now hard to describe the labour market as tight,' he wrote in an investment note.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Age
8 minutes ago
- The Age
Could AI change rugby league? The revolution has already begun
Pressed on specifics, Driussi was diplomatically vague: 'We're exploring multiple AI applications, but competitive advantage comes from execution, not just ideas. The technology helps us analyse information and identify patterns that might otherwise be missed.' What makes the Bulldogs' AI adoption particularly intriguing is Driussi's other role as CEO of Quantium, an Australian artificial intelligence and advanced analytics company. The firm works with major Australian companies, such as Woolworths, Commonwealth Bank, Telstra and Qantas. The connection provides the Bulldogs access to world-class AI expertise that would typically cost NRL clubs millions of dollars to develop themselves. While Driussi is careful not to discuss any formal arrangements, the potential for knowledge transfer is obvious. The 'Family Club' previously revealed it used AI to identify Jacob Preston during his recruitment from the Roosters' pathways system, suggesting the technology has been instrumental in some of their personnel decisions. AI's influence on sport was one of the topics discussed at the NRL's Business of Sport Conference in Las Vegas at the University of Nevada, just before this year's season-opening matches at Allegiant Stadium. The headline speakers were Driussi and Paul Devlin, the latter the global strategy leader for betting, gaming and sports technology at Amazon Web Services. Devlin, who has held high-performance roles at the Brisbane Broncos, South Sydney, Parramatta and Melbourne Storm, said AI would transform the sporting landscape. 'We see AI as absolutely revolutionary, and we think it will impact every area of business in the future,' Devlin says. 'So everybody should be experimenting with it right now, so that was kind of the key message that came out of that NRL event ... AI is going to improve every area of business, but it is really clear on the insight generation from the data side of it in a sport like rugby league on talent identification, load monitoring, safety of the games through simulations, as well as the fan side of sport as well.' Several NRL clubs are already dabbling with AI. One leading head coach, speaking on the condition of anonymity to protect the club's intellectual property, said that AI had the potential to help analysts wade through reams of data to come up with a couple of key takeaways when preparing for an opponent. 'That's where I see the next step in world sport, how AI can save you time in identifying those trends so you're not wasting time doing it yourself,' the coach says. 'The advantage you get is saving man-hours, so you actually spend less time on computers and more with the players. 'You can see the information that's relevant; missed tackles is the most outdated stat because there's no context to it. And completion rates; seven of the top-10 completing teams didn't make the finals last year.' Here's a practical example of how AI is being used. One club found the best way to beat the Storm is to limit their time in possession. If you can restrict them to less than 23 minutes and 25 seconds with the football – they average 26 minutes and 36 seconds – you have an almost 100 per cent chance of winning. Not easy to do in reality, but it's useful information. While most NRL teams focus heavily on pre-contact metres – the distance gained before first defensive contact – to build momentum, a different focus is required to beat Canberra. AI found the Raiders were uniquely driven by post-contact metres, those tough yards gained after contact. Limit those metres, and you can stop the Green Machine. Canterbury's embracing of AI reflects a broader transformation sweeping through professional sport worldwide. American sports leagues are leading the charge, with the NFL processing more than 500 million data points per season through its Digital Athlete system, reducing player injuries by 700 missed games since 2023. Major League Baseball has implemented AI for pitching analysis and injury prevention, while the NBA uses machine learning for player load management and game strategy optimisation. English Premier League clubs are using AI for recruitment: Brighton's system identified Moises Caicedo before his eventual £115 million ($240 million) transfer from them to Chelsea, while Liverpool's partnership with Google DeepMind has produced tactical analysis tools that club experts prefer over traditional methods 90 per cent of the time. The secrecy surrounding Canterbury's AI implementation is understandable given the competitive implications; NRL clubs are notoriously protective of innovations that might provide advantages. The technological investment aligns with the Bulldogs' recent restructure. The blue and whites are constructing a $50 million centre of excellence at Belmore and have significantly expanded their pathways programs, including taking over the Fiji Silktails program. 'We're building for long-term success,' Driussi says. 'That means investing in the best people, the best facilities and the best technology available to us.' Bulldogs chief executive Aaron Warburton confirmed the club's commitment to innovation. 'We're always looking at ways to improve our operations and give our players and staff the best possible tools to succeed,' Warburton says. 'Technology is certainly part of that equation.' Loading The club's return to finals football last year, after missing the post-season for eight seasons, has been attributed to improved recruitment, player development and coaching. However, the role of AI in this transformation remains largely hidden. Given the global AI sports market is tipped to grow from $1.2 billion to nearly $30 billion by 2032, getting in early could be the key to success. Already, rivals are playing catch-up to Canterbury. For a club that has endured wooden spoons and years of mediocrity, the Bulldogs are marrying old-school values with cutting-edge technology. Whether that translates to premiership glory remains to be seen, but the Bulldogs are betting heavily that the future of rugby league will be shaped by artificial intelligence.
AU Financial Review
8 minutes ago
- AU Financial Review
Seek spat shows the challenge as disruptors become the disrupted
For journalists of a certain age there is a kind of gallows humour in observing online recruitment giant Seek embroiled in a spat with an increasingly popular younger rival, in Employment Hero. It is a good Australian example of a growing global trend - highlighted by the emergence of new AI industry giants - where previously flashy tech disruptors have been around long enough to become incumbents themselves, and therefore ripe for disruption.
Sydney Morning Herald
38 minutes ago
- Sydney Morning Herald
Could AI change rugby league? The revolution has already begun
Pressed on specifics, Driussi was diplomatically vague: 'We're exploring multiple AI applications, but competitive advantage comes from execution, not just ideas. The technology helps us analyse information and identify patterns that might otherwise be missed.' What makes the Bulldogs' AI adoption particularly intriguing is Driussi's other role as CEO of Quantium, an Australian artificial intelligence and advanced analytics company. The firm works with major Australian companies, such as Woolworths, Commonwealth Bank, Telstra and Qantas. The connection provides the Bulldogs access to world-class AI expertise that would typically cost NRL clubs millions of dollars to develop themselves. While Driussi is careful not to discuss any formal arrangements, the potential for knowledge transfer is obvious. The 'Family Club' previously revealed it used AI to identify Jacob Preston during his recruitment from the Roosters' pathways system, suggesting the technology has been instrumental in some of their personnel decisions. AI's influence on sport was one of the topics discussed at the NRL's Business of Sport Conference in Las Vegas at the University of Nevada, just before this year's season-opening matches at Allegiant Stadium. The headline speakers were Driussi and Paul Devlin, the latter the global strategy leader for betting, gaming and sports technology at Amazon Web Services. Devlin, who has held high-performance roles at the Brisbane Broncos, South Sydney, Parramatta and Melbourne Storm, said AI would transform the sporting landscape. 'We see AI as absolutely revolutionary, and we think it will impact every area of business in the future,' Devlin says. 'So everybody should be experimenting with it right now, so that was kind of the key message that came out of that NRL event ... AI is going to improve every area of business, but it is really clear on the insight generation from the data side of it in a sport like rugby league on talent identification, load monitoring, safety of the games through simulations, as well as the fan side of sport as well.' Several NRL clubs are already dabbling with AI. One leading head coach, speaking on the condition of anonymity to protect the club's intellectual property, said that AI had the potential to help analysts wade through reams of data to come up with a couple of key takeaways when preparing for an opponent. 'That's where I see the next step in world sport, how AI can save you time in identifying those trends so you're not wasting time doing it yourself,' the coach says. 'The advantage you get is saving man-hours, so you actually spend less time on computers and more with the players. 'You can see the information that's relevant; missed tackles is the most outdated stat because there's no context to it. And completion rates; seven of the top-10 completing teams didn't make the finals last year.' Here's a practical example of how AI is being used. One club found the best way to beat the Storm is to limit their time in possession. If you can restrict them to less than 23 minutes and 25 seconds with the football – they average 26 minutes and 36 seconds – you have an almost 100 per cent chance of winning. Not easy to do in reality, but it's useful information. While most NRL teams focus heavily on pre-contact metres – the distance gained before first defensive contact – to build momentum, a different focus is required to beat Canberra. AI found the Raiders were uniquely driven by post-contact metres, those tough yards gained after contact. Limit those metres, and you can stop the Green Machine. Canterbury's embracing of AI reflects a broader transformation sweeping through professional sport worldwide. American sports leagues are leading the charge, with the NFL processing more than 500 million data points per season through its Digital Athlete system, reducing player injuries by 700 missed games since 2023. Major League Baseball has implemented AI for pitching analysis and injury prevention, while the NBA uses machine learning for player load management and game strategy optimisation. English Premier League clubs are using AI for recruitment: Brighton's system identified Moises Caicedo before his eventual £115 million ($240 million) transfer from them to Chelsea, while Liverpool's partnership with Google DeepMind has produced tactical analysis tools that club experts prefer over traditional methods 90 per cent of the time. The secrecy surrounding Canterbury's AI implementation is understandable given the competitive implications; NRL clubs are notoriously protective of innovations that might provide advantages. The technological investment aligns with the Bulldogs' recent restructure. The blue and whites are constructing a $50 million centre of excellence at Belmore and have significantly expanded their pathways programs, including taking over the Fiji Silktails program. 'We're building for long-term success,' Driussi says. 'That means investing in the best people, the best facilities and the best technology available to us.' Bulldogs chief executive Aaron Warburton confirmed the club's commitment to innovation. 'We're always looking at ways to improve our operations and give our players and staff the best possible tools to succeed,' Warburton says. 'Technology is certainly part of that equation.' Loading The club's return to finals football last year, after missing the post-season for eight seasons, has been attributed to improved recruitment, player development and coaching. However, the role of AI in this transformation remains largely hidden. Given the global AI sports market is tipped to grow from $1.2 billion to nearly $30 billion by 2032, getting in early could be the key to success. Already, rivals are playing catch-up to Canterbury. For a club that has endured wooden spoons and years of mediocrity, the Bulldogs are marrying old-school values with cutting-edge technology. Whether that translates to premiership glory remains to be seen, but the Bulldogs are betting heavily that the future of rugby league will be shaped by artificial intelligence.
