Many stocks were battered on the NZX last year, meaning there may be cheap opportunity on the table. Investment firm Forsyth Barr reveals its top picks for the year. Video / Carson Bluck
Some of our largest, listed companies report their finances from this week and analysts are expecting ugly updates.
Investors, brace for bad news, because this earnings season is expected to be one of the worst on record - only surpassed by the 2009 and 2020 seasons.
Forsyth Barr research analystsAaron Ibbotson and Matthew Leach gave the grave prediction in a note to clients, saying they were expecting a decline in earnings per share of 4.8 per cent across the board.
“We expect limited good news in the results but anticipate some outlook statements to signal the green shoots of a recovery,” the note read.
Thirty-seven companies listed on the New Zealand Stock Exchange, 28 of which were in the Top 50 index, were due to report their mostly half-year results between mid-February and early March.
Craigs Investment Partners’ research team was also preparing for a lack of positivity, with expectations companies would hit new low points in their respective industries.
“Bullish outlook statements this reporting season are likely to be rare, and with demand and sentiment at such a low ebb, this reporting season is likely to be close to the low point for the real economy,” head of institutional equities Geoff Zame wrote in a note to clients.
Zame warned retailers would be among the weak results, namely The Warehouse Group, Michael Hill International and KMD Brands - all of which had given negative trading updates to the market in the past few months.
Its result on Wednesday would give some detail on the depth of the downturn in the sector, Zame wrote.
Jarden analysts suggested Fletcher could cut its dividend payout to investors, while steel companies may wear some of the construction industry impact too.
Forsyth Barr analyst Rohan Koreman-Smit expected Vulcan Steel to reveal a 30 per cent decline in earnings in the past six months, starting the earnings season on a negative note on Tuesday.
Air New Zealand could also post a “meaningful downgrade” from a slower passenger recovery path, although Auckland International Airport may be cushioned from the blow due to better retail income earned inside its terminals.
Analysts are bracing for earnings downgrades from companies including Air New Zealand this reporting season, as a slowdown in spending takes its toll. Photo / Grant Bradley
Spark was also in Forsyth’s sights, with its note suggesting a possible further weakening in its revenue and mobile margins.
“No material surprises expected in the result, but the risk to guidance and consensus is to the downside - at the margin,” Craigs’ Zame added regarding Spark.
Is there any upside?
While analysts were largely negative heading into the results season, the possible bottom of the cycle could offer opportunities for investors.
“This backdrop makes us cautiously optimistic that this earnings season will mark the cyclical low,” Forsyth’s Ibbotson and Leach wrote.
“The lows of 2009 and 2020 turned out to be excellent entry points for the NZ and global markets.”
Some companies were faring better despite consumers being stretched.
Jarden was expecting solid operating results from the major power companies Contact, Mercury and Meridian.
“Strategically, we are looking for an update on build intentions, with the likelihood of a Tiwai resolution now expected sooner and with a positive industry outcome,” Jarden’s note to clients read.
The a2 Milk company may prove positive this season if it can show an improvement in sales trends.
Summerset was the only retirement village operator reporting this season, so could offer interesting insights into the sector. The stock was chosen by a couple of analysts in the Herald’s Pro Stock Picks game in January.
“We expect better margins ... and slower net debt growth than consensus,” Craigs’ Zame wrote.
His team was also excited by apple exporter Scales’ strong harvest and the potential for a2 Milk to show some positivity in sales trends.
The season would start with Vulcan Steel on Tuesday this week, with Fletcher Building on Wednesday, followed by Vital Healthcare Property Trust and Skellerup on Thursday.
The following week, commencing Monday February 19, included many of the heavy hitters: a2 Milk, Freightways, Steel & Tube, Ebos Group, SkyCity, Sky Network Television, Air New Zealand and Precinct Properties.
Disclaimer: The information provided in this article is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
