The Devon View: August 2026

August 2026

Slade Robertson, Chairman 

Most of the Devon strategies performed well last month. In an environment which is typically associated with heightened volatility, this reporting season has proven to be a productive environment for our disciplines around “quality” and “value”. There were still extreme daily price moves across individual securities but our focus on understanding the expectations that were built into the company results protected us from many negative surprises. This bi-annual session requires most companies across New Zealand and Australia to report their financial results and from this collective information flow we develop our views of each company, the sectors within which they operate and ultimately the state of the underlying economy.

The August reporting season told a similar story on both sides of the Tasman: conditions remain tough, but largely not as tough as feared. In Australia, FY26 results beat consensus more often than average, with resilience coming from cost control rather than revenue strength. This helped the ASX 200 rally 1.6% during the month. In New Zealand, a run of in-line-to-better results, capped by a guidance upgrade from index heavyweight Fisher & Paykel Healthcare, helped push the NZX 50 through 14,000 points for the first time, even as Air New Zealand delivered the season's most significant disappointment. For clients, the read-through is a market rewarding balance-sheet discipline and punishing anything short of it.

In Australia sentiment took a hit in May and June as an RBA rate hike landed alongside the Budget's tax reform, but trading updates suggest conditions have improved a little into FY27. Household spending re-accelerated and inflation surprised to the upside again, reviving the risk of further hikes; the market is now pricing one by November, with a material risk of an earlier move in September.

Against that backdrop, 43% of ASX 200 companies beat earnings expectations which is slightly above the 40% historical average, while consensus trimmed FY27 earnings per share for industrials by 2%, in line with the usual pattern. Revenue growth was a modest 2% over the half — implying falling volumes once ~4% CPI is stripped out — but earnings still surprised to the upside as margins stabilised after three years of decline, as efficiency initiatives largely offset labour, fuel, freight and capex inflation.

Investors were unforgiving of misses: 46% of stocks moved more than 5% on results day, against a 28% average, and 21% fell more than 5%, a post-COVID high. Unusually, stocks that beat expectations have since given back their result-day gains (down 1.6% on average), a departure from the normal pattern of beats continuing to outperform.

Retail trading updates for July and August pointed to a modest stabilisation versus May/June, though at subdued levels. Discretionary categories, particularly furniture and electronics, remain the weak spot as house prices keep correcting, while value-conscious households are prioritising travel and supermarket spending over dining out. Banks reported declines in mortgage applications, though the majors still expect positive credit growth, and bad debts to stay benign despite some pockets of asset-quality concern.

Capital management was notably conservative: cash spend fell in single digits over the half, with M&A activity around half its normal run-rate. Despite this, we benefitted from two of our portfolio companies, Cleanaway and Sky City, both being targeted by corporate interest. Outside of this companies announced roughly A$7bn of buybacks in August, led by ResMed, CSL and Telstra, while Resources bucked the trend, with several miners tilting toward growth capex instead. Gearing remains benign, though the payout ratio sits about 5% below the decade average. Gold, Healthcare, Building Materials, Metals and Tech outperformed over the month; Discretionary, Banks, REITs, Telcos and Staples lagged. AI is now firmly part of the narrative, with 60% of companies referencing it on calls, mostly around back-office automation, customer support and coding productivity, and copper emerging as a fresh AI-linked demand driver for miners.

The New Zealand market had its own strong August, with Fisher & Paykel Healthcare the standout contributor after lifting full-year guidance roughly 3-4% above previous expectations on strong hospital-product demand, favourable currency movements and US tariff refunds.

Elsewhere, the “better than feared” theme held: Spark New Zealand jumped around 12% in its best week since 2015 after in-line results and guidance that came in slightly ahead of expectations, while Ebos Group rose about 7% on on-target annual results, largely on relief there was no downgrade. Mercury NZ and Gentrack also rallied strongly, and smaller-cap South Port New Zealand reported record annual profit growth of 21% and lifted its full-year dividend 3.6% to 29 cents per share. Another one of our investment companies, Summerset, also traded well after delivering its result, finishing up 9% on the day of its earnings announcement.

The season's clearest disappointment was Air New Zealand, which swung to a pre-tax loss of $336 million, from a $164 million profit in FY25, on surging jet fuel costs, Rolls-Royce and Pratt & Whitney engine issues, and higher aircraft maintenance and aviation system costs. No dividend was declared and management gave no FY27 earnings guidance, describing next year as “both a transition and recovery year.” Turners Automotive also warned that margin pressures were building, and dual-listed banks ANZ and Westpac eased on results.

Across both markets, cost discipline is doing more work than top-line growth to protect margins and earnings, and management teams are behaving cautiously on capital allocation while macro risk (rate hikes in Australia, fuel and FX in New Zealand) stays elevated. Reaction functions differ, though: ASX beats are being sold into strength, while NZX has been more forgiving of in-line results against a lower bar, with idiosyncratic misses like Air New Zealand punished on their own merits rather than read as a macro signal. For portfolios, that argues for continued emphasis on quality, pricing power and demonstrated cost control over cyclicality.

As we progress into the end of CY2026, investment markets will have plenty of issues to factor into prices. Globally these will include the US mid-term elections, the conflict in the Middle East and the elevated level of interest rates. Closer to home, the Australian economy feels subdued and in New Zealand, activity levels will be affected by our upcoming general election. Despite these uncertainties, what the past month has demonstrated is that many of the companies listed on the NZX and ASX are in good shape and are well positioned to grow their earnings.