Infratil, which owns One NZ (formerly Vodafone NZ) is due to report its result next week. Photo / NZME
Infratil, which owns One NZ (formerly Vodafone NZ) is due to report its result next week. Photo / NZME
Recent corporate earnings downgrades have highlighted just how badly the economy is faring, but some optimism has nevertheless emerged that the bad news is already out.
While the market is braced for some ugly numbers when companies start reporting next week, the good news is that many of the country’sbiggest stocks have little exposure to the struggling domestic economy.
Take, for example, respiratory products maker Fisher & Paykel Healthcare, which derives the vast majority of its revenue from overseas.
Other heavy hitters like Mainfreight and Infratil also have big exposure to offshore markets.
Mohandeep Singh, portfolio manager at Craigs Investment Partners, noted significant earnings downgrades have already come from Fletcher Building, Spark and Tourism Holdings.
“Fingers crossed it gets better, because it hasn’t been very pretty so far,” Singh says.
“If downgrades don’t come out now, or over the next day or two, then it suggests that companies are likely to be within their guidance ranges,” he said.
The consensus of market expectations for Mainfreight, which reports on May 29, is for a pre-tax profit of $392.5m from the previous year’s bumper number of $587.4m.
This time, it’s likely to be back to more business-as-usual levels, but an improvement on pre-pandemic earnings.
Singh sees Mainfreight as a global proxy because of its geographical spread.
“A lot of its earnings come from outside New Zealand and outside Australasia,” Singh said. “It’s a proxy for warehousing, shipping and trucking.
“They tend to always win some market share and they do all the right things, but it’s hard to get away from the broader backdrop, which has got to be challenging,” he said.
With F&P Healthcare (FPH) having already “pre-announced” its 2024 result, the key question when it reports on May 29 will be guidance for the 2025 year.
Fisher and Paykel Healthcare reports its result on May 29.
In March, FPH said it expects full-year operating revenue to be about $1.73b and underlying profit after tax to be in the range of $260m to $265m.
Since that time, the company has announced a voluntary product recall - the direct cost of the recall on full-year earnings is expected to be about $12m.
Singh said infrastructure investor Infratil’s ebitda - earnings before interest, taxes, depreciation, and amortisation - guidance for 2024 remains on track and is unchanged at $820m-$850m.
The focus will still be on the pipeline of opportunities the business has in the data center market and the renewable generation space.
Infratil’s telco investment, One NZ provides a stable cash-generating business which partly helps fund dividends and re-investment into the high-growth areas, he said.
The company is due to report on May 21.
Aged care in focus
Forsyth Barr noted that over the last six months the share prices of the three aged care operators with March year ends were down, with Ryman Healthcare the worst performer.
“Its market cap is now two-thirds of what it was a decade ago, when it was about to report annuity earnings of $59m, compared to the all-time high of $187m we expect it to report for full-year 2024,” Forsyth Barr said.
“It is easy to look at the share prices and conclude that it is all doom and gloom in aged care land, but we disagree.
“Care profits are depressed but margins are improving for the first time in a decade, the ‘glass half full’ approach would suggest we should pay a higher multiple for depressed but recovering earnings.
“The housing market is weak, with low turnover. But cash recovery is improving for the sector in general and for Ryman in particular.
“We expect the three reporting aged care companies to report the lowest increase in net debt on record for the last six months, with Ryman’s net debt broadly flat and modest increases for Oceania Healthcare and Arvida Group.”
Underlying net profit was lowered to $265-285m, down 13 per cent from the prior guidance.
Ryman can expect to come under the microscope because of the departure of CEO Richard Umbers last month and other senior management changes.
All up, the three aged care results should give investors a feel for how the sector is performing against the backdrop of a challenging housing market.
Investors are concerned about potential capital raises for the retirement village sector.
“We do not believe the aged operators need, will, or should raise capital,” Forsyth Barr said.
“But never say never; market caps close to or below net debt tend to stress investors out.”
All eyes will be on communication around capital needs and cash generation.
“A weak message is unlikely to be taken well,” Forsyth Barr said.
Sensitive names
Craigs’ Singh said the economic downturn is already evident in some of the more sensitive names.
“A struggling construction sector, a slowly rising unemployment rate, all these things that are happening as a result of interest rates being at contractionary levels - that will be reflected in these businesses that are more exposed,” he said.
“If you are not exposed, you are shrugging your shoulders, but broadly you are doing fine.
“The key thing is that we should not be surprised.”
Results coming up:
May 20
Manawa Energy, full year.
Latest guidance: Ebitdaf range $142m to $147m.
Gentrack, half year.
May 21
Infratil, full year.
Paysauce, full year.
Latest guidance: On track to deliver maiden net profit after tax and positive cashflow.
Pacific Edge, full year.
May 22
Argosy, full year.
Napier Port, half year.
May 23
AFT Pharmaceuticals, full year.
Latest guidance: Operating profit $23m to $25m.
Eroad, full year.
My Food Bag, full year.
May 24
Oceana Healthcare, full year.
May 27
Smartpay, full year.
Ryman, full year.
Latest guidance: Underlying profit in a range of $265 – $285m from a previous guidance of $300 – $330m.
Kiwi Property, full year.
May 28
Tower, half year.
Goodman Property Trust, full year.
Asset Plus, full year.
Serko, full year.
Arvida, full year.
May 29
Mainfreight, full year.
Fisher and Paykel Healthcare, full year.
Latest guidance: Operating revenue about $1.73b, underlying net profit $260m to $265m.
May 30
Trade Window, full year.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
