Companies exposed to 'NZ Inc' better off

Sky Network TV reported a strong result. Photo / Dean Purcell

New Zealand was the place to be for many local corporates over the past financial year, and the going was tougher for those exposed to overseas markets, but the underlying earnings outlook for most was favourable, market participants said.

Now that the listed companies with June 30 balance dates have reported their annual results, the verdict is that corporate profitability, particularly for those with exposure to "NZ Inc", is looking better.

Forsyth Barr's head of research Rob Mercer said there had been a definite improvement in the underlying earnings outlooks for the listed companies.

"The information has given us confidence about the outlook for earnings for 2012 and allowed us to make more upgrades than downgrades by the biggest margin than we have seen for a few years now," he said.

Forsyth Barr had issued 14 earnings upgrades for the stocks it covers and six downgrades, based on recent company results.

Mercer said that although nothing dramatic emerged from the reporting season, it showed that companies were "inching in the right direction".

But fund managers said sentiment was turning against those local companies with exposure to the Australian economy, which has come under pressure from a very strong Aussie dollar.

"Things are still not getting easy in New Zealand, but they are becoming less bad, whereas clearly the Australian economy is continuing to deteriorate," said Matt Goodson, a portfolio manager at BT Funds Management.

The worsening situation in Australia is making its presence felt on Fletcher Building, New Zealand's biggest company by market capitalisation, and a company which derived 38.5 per cent of its sales from across the Tasman in the June year.

Fletcher Building said it expected to see a gradual improvement in New Zealand housing starts in the 2011/12 year but it did not expect an improvement in Australian residential construction in the short term.

"The grass is not always greener on the other side of the ditch or on the other side of the world," said Shane Solly, portfolio manager at Mint Asset Management. "As a generalisation, the NZ Inc-focused companies are doing better."

A case in point was Sky Network TV, which reported a strong result, rewarding shareholders with a 25c per share special dividend valued at around $97.3 million.

Telecom's result was overshadowed by its operational separation, which is expected to happen some time this year, and which has attracted broad support from the market.

The leading telco's after-tax profit tumbled by 56.5 per cent from $382 million to $166 million for the year to June 30. Revenue was down almost 3 per cent to $5.12 billion.

Goodson said rebuilding work in Christchurch after the earthquakes could "skew things around a little bit" and that it would not be until mid-way through next year before any beneficial impact would show through in corporate earnings.

Among the highlights of the season was Auckland International Airport, which posted an underlying profit increase of 15.1 per cent.

But Origin Energy-controlled Contact Energy continued to disappoint, with net profit of $150.3 million in the year ended June 30, down 2.8 per cent on the previous year's result.

Big numbers

Fletcher: Up 4 per cent to $283m
Telecom: Down 56.5 per cent to $166m
Contact Energy: Down 3 per cent to $150.3m
Auckland International Airport: Up 15.1 per cent to $120.9m
Vector: Up 4.1 per cent to $201.4m

- APNZ