Sep 17, 2026 · 42 min
Small-cap gains mask a market split by sector
The Small Cap index is lying to you with Andrew Mitchell
The episode shows why headline index returns can obscure sharply different business conditions and investment opportunities beneath the surface.
- 1The Small Ordinaries Index rose roughly 10%, but materials surged while software, communications, and consumer stocks fell.
- 2Australian companies met earnings expectations while offering weaker outlooks, even as stronger balance sheets supported buybacks and dividends.
- 3Aphia combines top-down risk controls with bottom-up research, favouring differentiated insights in industrials, healthcare, technology, and consumer businesses.
Don't miss
Andrew Mitchell explains how Aphia researched Codan by speaking directly with retailers and users of its gold detectors and drone communication systems.
The brief
Andrew Mitchell argues that the small-cap market looked calmer than it was: a roughly 10% index gain concealed extreme dispersion between sectors and individual companies.
Materials led the market while software, communications, and consumer stocks struggled; meanwhile, reporting season delivered expected earnings but weaker company outlooks.
AI investment is driving data-centre expansion and new demand for electricity and infrastructure, creating opportunities alongside labour shortages, rising costs, and execution risks.
Southern Cross Electrical illustrates the tension: its data-centre opportunity is growing after a profit upgrade, but electrician shortages and higher labour costs could pressure margins.
Aphia’s bottom-up process builds a research mosaic from customers, competitors, suppliers, and management, seeking earnings trajectories the market has misread.
Codan became a case study in that approach, with research into gold detectors and drone communications helping Aphia assess demand, pricing, and competitive dynamics.
What was said on this episode
30 statements · 17 positive · 11 negative · 1 mixed · 1 neutral
Materials rose 50% in FY26, while software SaaS companies were heavily hit.
“materials go up 50%.”
Listen at 2:48
Communication services and consumer discretionary sectors fell 20%.
“They were off 20%.”
Listen at 3:45
FY26 produced the largest sector-performance dispersion Andrew has observed in ASX history.
“that is the greatest dispersion that we've seen between the best performing sectors and the worst performing sectors.”
Listen at 4:03
Large sector movements generally reflect major structural market changes.
“when you get these movements is a big structural change.”
Listen at 4:54
US-dollar-denominated assets benefit when America debases its currency.
“anything denominated in US dollars, you are going to do well.”
Listen at 5:05
Market expectations for 2027 EPS growth fell to 8%.
“the EPS expectations for '27 for the market have now come back down to 8%.”
Listen at 6:41
Subdued company outlooks lead to lower investment and hiring.
“When companies have maybe a little bit of a subdued outlook, it means they're not gonna invest as much in their business. They're not gonna hire as much.”
Listen at 8:08
Australian companies’ balance sheets are in their strongest post-reporting-season condition.
“the balance sheets have come out post-reporting season in the best shape they've been.”
Listen at 8:26
Higher hyperscaler capital expenditure is currently associated with falling share prices.
“You lift your CapEx, your share price goes down.”
Listen at 10:31
Large amounts of data-centre capital are seeking investment opportunities in Australia.
“there's a huge amount of capital that's looking to come to Australia.”
Listen at 12:58
Australia’s data-centre expansion will require substantially more energy supply.
“We're going to have to find the energy though”
Listen at 13:03
Australia could attract redirected hyperscaler data-centre capital because of its rule of law.
“Australia as a democratic, we've certainly got the rule of law down here, something we do very well, maybe not a bad place to put some more capital for those big US hyperscalers.”
Listen at 14:20
Southern Cross Electrical is positioned to benefit from data-centre and grid infrastructure demand.
“we think it's well placed to do well.”
Listen at 15:41
Labour availability is a significant problem for businesses.
“Labour's a problem.”
Listen at 16:59
Tightening labour markets increase execution and margin risks.
“as it gets tighter and tighter, that's when the risk, the risk builds.”
Listen at 17:31
Australian reporting-season share-price volatility has increased.
“Yeah, it certainly is more volatile.”
Listen at 18:27
Markets are rewarding takeover candidates while investors exit crowded EPS-beating stocks.
“there's a bit of a regime change here with sort of, we're looking at these companies that are the EPS misses and they're getting taken over versus the EPS beats, which are now the funders and maybe the crowded stocks that people are moving out of.”
Listen at 20:09
Some CEOs deliberately insert market buzzwords into communications.
“They are 100% dropping dropping what they know as buzzwords.”
Listen at 21:28
Corporate earnings drive share prices over the medium to long term.
“Earnings are what drives a company's share price over the medium to long term.”
Listen at 23:12
Aphia may forecast $750 million profit versus a market forecast of $500 million.
“we think it's gonna be $750 million.”
Listen at 23:27
Positive EPS revisions drove major valuation-multiple increases for US electrification companies.
“we could see in the US that companies like Quanta and MasTech and ISC, they're all having these huge multiple rewrites driven by EPS revisions.”
Listen at 27:04
Detailed research rarely provides an informational edge on gold companies.
“I'm not going to really get an edge.”
Listen at 29:33
Aphia prefers industrials, healthcare, technology, and consumer discretionary stocks.
“Where you'll find us more to be overweight and hanging out are the ones where that edge really exists. So they're industrials, healthcare, tech, consumer discretionary.”
Listen at 30:27
GenusPlus and Southern Cross Electrical doubled or tripled in value.
“GenusPlus and Southern Cross Electrical. So they're like 2% positions because they're not big companies, but they doubled and tripled.”
Listen at 32:07
Investors should limit losses because investment decisions will sometimes be wrong.
“You've got to avoid how big your loss, because you will get them wrong. Just don't let the losses be too big.”
Listen at 33:02
Codan dominates the gold-detector market.
“they own the market.”
Listen at 33:25
Codan doubled the price of its GPZ 8000 detector to $18,000.
“They've doubled the price.”
Listen at 34:47
Codan’s Gold Monster 2000 works across different mineralization environments.
“The Gold Monster 2000 is so good it works anywhere.”
Listen at 35:27
Codan is well positioned to sell substantial drone-communications equipment globally.
“Codan's in the box position to be able to sell a huge amount of these comms.”
Listen at 38:40
Codan is expected to grow faster than market forecasts for many years.
“we think this business is growing a lot faster than the market expects and it's got a runway for many years in the future to do well.”
Listen at 40:28
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
Featuring
Southern Cross ElectricalListen to the full episode and explore every guest, topic, and moment on PodLume.