Sandstone Insights’ post-reporting season round-up included a deeper look at some companies

The ASX reporting season was not a record breaker but still highlighted possible opportunities across the market, ranging from companies that surprised on the upside to those potentially oversold by investors.

Research firm Sandstone Insights holds positive views on a number of companies after a reporting season which left forecast earnings growth for the S&P/ASX 200 in fiscal 2027 at around 6%, or slightly lower than previously anticipated.

“In the context of the past few years, that’s not a bad number. Earnings went backwards for four years from 2022/23 but were better than expected this time around,” Sandstone Insights’ Head of Investment Strategy John Lockton says.

Below are examples of companies that Sandstone Insights called out following the latest profit announcements.

Surprise packets

AMP (ASX: AMP) has risen from lows recorded earlier this year and could run from the low $2 mark to up to $2.60, according to Lockton. New appointments to the Chief Executive Officer and Chief Financial Officer roles has reinforced accountability, and the improved contribution of a partnership with China Life to the company’s performance has surprised investors. It would not be unexpected if AMP stepped away from its banking business and that would put the strong growth of its North platform firmly in the spotlight. “AMP wants to stand up and be counted,” Lockton says.

Pro Medicus (ASX: PME) beat expectations and one of the key callouts was management’s confidence in its ability to continue to deliver annual revenue growth of 30%, according to Sandstone Insights Research Analyst Ryan McCaugherty. The market had expected revenue growth would fall to 25% and then rapidly decline over the next few years. “If it can maintain sales and contract pipeline, there is material earnings upside for a stock that admittedly has high earnings expectations baked into it. We think this earnings cycle can continue and, remember, it’s delivering just under 80% EBIT margin. So it’s very cashflow positive,” McCaugherty says.

Contrarian plays

Seek’s (ASX: SEK) share price fell around 40% in the 12 months to early September and Sandstone Insights doesn’t expect significant upside in its earnings in the next 3-12 months. But Lockton says the sale of assets from the online job platform’s $2 billion Seek Growth Fund would realise value that could push its share price higher.

The fund is a growth equity investor in the global work and earning space, with holdings in companies including human resources software unicorn Employment Hero, Israeli human software company HiBob and Melbourne-based edtech Cadmus.

“If Seek could do that and put the proceeds into a buyback or pay down debt, it would demonstrate value that the market does not appear to appreciate,” Lockton says.

Tracking app company Life360 (ASX: 360) did improve revenue in its second-quarter results but it was a “low quality beat”, according to McCaugherty. 

The 2026 guidance from the dual-listed Silicon Valley-based company relies on a “fourth quarter skew” in which business would improve significantly – but the overall market “doesn’t want to buy into that narrative,” he says. Sandstone Insights instead believes the Christmas period is historically one of the best for advertising and that investors potentially underappreciate the monetisation that Life360 can deliver through its high quality, data-rich advertisements.

“As well, new users of Life360 continue to grow exponentially and now exceed 100 million. New verticals in areas like pet tracking are growing nicely too. We think the stock has been oversold despite delivering pretty solid growth,” McCaugherty says.

Income opportunities

Diversified financial company Challenger (ASX: CGF) produced a strong result after restating earnings and restructuring its earning. Lockton says the consensus view on the stock doesn’t reflect the quality of the result. He also says the real “prize” for investors to consider is the potential for capital management following changes to annuity rules implemented by the Australian Prudential Regulation Authority in the middle of this year. He estimates that Challenger is in the early stages of releasing $1.5 billion to $2 billion in capital and could do so in several ways – including by improving annuity outcomes for investors, paying special dividends or undertaking a share buyback. The company had a dividend yield of approximately 3.7% in early September, which Lockton says could increase by a “full percentage point” once potential buyback activity is considered.

Transurban Group (ASX: TCL) has been sold off as a bond yield proxy but is “good value” at a dividend yield of more than 5% that is almost fully covered by free cashflow, according to McCaugherty.

“One of the biggest debates about the stock previously centred on the overhang from the NSW toll reforms. There is now clarity around it – which is essentially a net neutral outcome for the company. We think it has now been given a licence to look for growth opportunities and acquire new assets.”

“It has announced a partnership in the US and has opportunities in Australia, including the widening of lanes.”

Sandstone Insights expects the stock’s underlying growth to be in excess of CPI and that potential new assets that extend the concession life of the overall group could drive a rerating of the multiple at which it trades.

Important information

Sandstone Insights is a registered business name of MST Financial Services Pty Ltd (ABN 54 617 475 180 ASFL No: 500557) are not associated with AUSIEX and the content or any views expressed by Sandstone Insights, MST and its employees do not represent an endorsement, recommendation, guarantee or advice in regard to any matter. 

 

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