Mark Lister: Get ready for an NZX earnings bonanza

The international corporate reporting season is winding down this week, just as ours here begins. Let’s hope we follow offshore trends and that corporate New Zealand can deliver some similarly upbeat results.

The forthcoming results will cover the first six months of 2021 and most of these should look strong, simply based on the extreme disruption from the same period a year ago.

New Zealand’s most recent economic growth report was much stronger than expected. with construction a particularly strong contributor.

This should ensure Fletcher Building, which has seen its share rally to a near four-year high, will remain in the spotlight as a key beneficiary of this backdrop.

Similarly, companies exposed to the housing market (such as retirement village operator Summerset) should be enjoying a relatively buoyant economic backdrop.

At the same time, the construction sector (like many others) is facing challenges because of freight disruptions and labour shortages. These issues are likely to be regularly cited as concerns over the coming weeks.

Encouragingly, there were signs of global supply chain pressures easing in the latest ISM manufacturing survey in the US. The measure of prices paid by manufacturers saw its biggest fall in 16 months, while the supplier deliveries index retreated further.

Consumers appear to be directing more of their spending to services, rather than goods, which will hopefully see some of the recent blockages begin to reduce.

Results from Port of Tauranga and Freightways might shed further light on some of these issues here in New Zealand.

Cost pressures will be another strong theme. Our annual inflation rate is the highest in almost a decade, while the July ANZ Business Outlook survey shows a net 88 per cent of businesses were expecting higher costs.

Part of this will be related to staffing shortages, something highlighted by the unemployment rate falling to 4.0 per cent in June, the lowest since before the pandemic. This has seen some upward pressure on wages emerge, particularly in sectors facing more severe shortages.

In this regard, we might learn something from the likes of Restaurant Brands and Scales, which operate in fast food and horticulture respectively.

At least the government has sorted out the recognised seasonal employer (RSE) scheme, something it should’ve turned its attention to earlier.

More broadly, we should see some strong results from the businesses that had a particularly tough time a year ago. The first six months of 2020 was extremely challenging for the likes of Air New Zealand, Auckland Airport, Vista Group and SkyCity.

That should ensure headline increases look good, although it won’t necessarily please investors. Comments on the outlook will get more attention, as markets contemplate what the future holds for these businesses.

Other focal points of the coming weeks will be market heavyweights Fisher & Paykel Healthcare and a2 Milk. The former (which holds its annual meeting this month) was a major beneficiary of Covid-19, although its immediate future is less certain as the vaccine rollout takes hold.

Meanwhile, the a2 share price was over $20 a year ago, before a string of earnings downgrades saw it fall dramatically. Its upcoming result will be under the microscope as investors look for any evidence of a recovery.

The NZX 50 index has declined 3.8 per cent during the first seven months of 2021, in contrast to world shares which gained 13.4 per cent. That’s by far the biggest gap in performance we’ve seen since the local index came into being 20 years ago.

For most of the last several years, we’ve gone into the reporting season on the back of a strong market performance. This has set the bar quite high for many companies, with share prices often sitting at records.

In a way, it’s comforting that this time around the domestic market is a little bit unloved, having gone sideways to slightly down for much of this year. Let’s hope a solid earnings season is a catalyst for us to regain some ground.

* Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.

Source: Read Full Article