Comvita adds to growing list of earnings woes

Scott Coulter, chief executive of bee products company Comvita. Photo / Greg Bowker

Investors deserted manuka honey maker Comvita after the company advised that it was likely to descend into an operating loss in the current financial year, bringing to three the number of stocks to have been punished by the market in recent weeks for falling short of market expectations.

Comvita's share price dropped by 17 per cent per cent after the former high flier said a poor harvest and trouble in the unofficial trade channels with China would take the company to $7 million operating loss for the June financial year.

Earlier this week, specialised software developer Orion Health took a pounding when it said was in talks with other parties who may take a stake in the company, and that it had failed to close some contracts by the end of the financial year just finished.

Late last month, Fletcher Building's share price nosedived after the company said its annual earnings would be about $110 million short of its earlier guidance.

Harbour Asset Management portfolio manager and analyst Shane Solly most share prices had become elevated during the bull run enjoyed by the market in recent years, which meant investors were less inclined to take earnings disappointments kindly.

"Given where the valuations are in the equity market, when companies disappoint on earnings, the market is prone to reacting quite aggressively," he said.

"There is not the same room as there was two or three years ago for earnings disappointments," Solly said.

"When there is a series of (earnings) disappointments, the market can become quite jaundiced," he said.

Comvita's share price dropped by $1.50, or 17.4 per cent, to $7.10 after its announcement, to the effect that the two major downside risks communicated in our previous market announcements in January and February have both come to bear.

"We now expect that the direct impact of these two situations will result in an after-tax operating loss for the financial year ended 30 June 2017, in the order of $7m," it said.

The company expects its net profit to be about $9m after including the sale of Medihoney IP and shares in Derma Sciences.

It added that trading conditions over the last two months in its two largest markets - Australia and New Zealand - have not recovered in line with its earlier expectations. Comvita has fallen from grace after being one of the market's most sought after stocks in May last year, when it hit $12.87 a share.

"It was a glamour stock through 2015 through to the middle of 2016 where it rallied extremely strongly," said Grant Williamson, director at Hamilton Hindin Greene.

"Expectations obviously haven't been met. This is another earnings downgrade from the company and therefore investors have been rather heavy handed in selling the stock down," he said.

In its statement, Comvita said it had assumed that the informal channels out of Australia and New Zealand into China, known as daigou, would not recover to earlier forecast levels before its June 30, 2017 balance date.

To make matters worse, continued poor weather had further reduced the production of honey for the 2016-2017 season, it said.

"Although the informal trade channels will show growth over the previous half year this is still well under our previous expectations, and much of these sales to China have been satisfied by inventory held within the various channels to market," Comvita chief executive Scott Coulter, said.

Chairman Neil Craig said the simultaneous impact of two very significant events in one financial year were "tough to stomach" but that the Comvita business model remained sound.

Among the other stocks to lose favour, Orion traded levelled out today at $1.43 up one cent on the day but well short of Friday's closing level of $1.93.

Fletcher Building remained under pressure, dropping 27c to $8.04 today, against $9.22 just before last month's announcement and $10.80 at the start of the year.

- Additonal reporting BusinessDesk