Australia's corporate sector is cautious heading into the current financial year, according to the analysts at Canaccord Genuity, however, there are some standouts in terms of likely profit growth going forward.
The broking house said in the recent reporting season, there was "healthy" headline earnings per share growth of 12%, however, this was driven largely by the mining sector.
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Uncertainties have big business on the back foot
Looking ahead, CG said company guidance on the outlook was "broadly cautious across the board''.
They added:
High interest rates, tax policy changes, the weaker housing market, cost-of-living pressures and geopolitical uncertainty together constrained management confidence and limited visibility into the near-term outlook for operating conditions. Retail trading updates provided the clearest evidence of a softening consumer, with top-line growth slowing through 2H26 and into early FY27. The major Banks similarly pointed to tougher macro conditions and slower housing credit growth over the year ahead.
CG said the market was in a clear downgrade cycle outside of the resources sector.
They added:
Accordingly, we remain cautious on ASX 200 returns over the next twelve months. However, active investors willing to look beyond the index can still find high-quality companies offering resilient earnings despite the soft macro, credible growth prospects, and reasonable valuations.
But there are some sectors which are likely to perform well, the broking house said.
The energy sector is expected to grow earnings by 38%, driven by high oil prices, while the IT sector is expected to grow earnings by 22%, with strength from the major software as a service companies.
Consumer services are expected to grow earnings 13%, materials are expected to be up 11%, and retail staples also 11%.
Financial services facing challenges
CG is expecting the weakest growth to come from the financial services sector, with banks growing earnings just 3%.
Discretionary retail is also expected to be weak with 6% growth.
CG said:
Prior to reporting season, we flagged our caution towards both Banks and Retail. As expected, reporting season showed that both sectors face mounting macro headwinds from a weaker housing market, fragile consumer sentiment, high interest rates and persistent cost-of-living pressures (exacerbated by petrol price volatility). For Banks, this was reflected in cautious outlooks pointing to softer credit growth. For Retail, early-FY27 trading updates generally pointed to weakening top-line growth, particularly among retailers with greater exposure to housing activity.
CG said elevated bank valuations remain hard to reconcile with a weakening macro outlook and subdued earnings prospects.
They added:
Despite the soft sector outlook, the Big 4 trade at an average P/E ~20% above their ten-year average, supporting our continued sector underweight.
