Vulcan Steel sees green shoots emerging. Photo / NZME
The reporting season gets under way in earnest next week, but results so far have given a glimpse as to what might lie ahead.
Steel distributor Vulcan Steel is seen as a bellwether for the economy, and despite a first-half profit slump, the company’s share price has been on the up, post-result.
Vulcan said Australia and New Zealand were at a turning point.
It added trading volumes in New Zealand were anticipated to recover from the second or third quarter of this calendar year.
Salt Funds managing director Matt Goodson said it’s not the first time Vulcan has cried “green shoots”.
But going on the stronger share price, post result, it looked like the market believed it, he said.
Goodson said the company’s exposure to the rural economy, particularly the strong dairy sector, made the “green shoots” story more credible.
More light will be shed on the state of the economy next week when some of the market’s bigger companies report.
“Everything we’ve seen sort of suggests the September quarter was the bottom. December was still a bit bumpy though,” Goodson said.
“There are some signs of life, some not so good. Retail still looked a bit ugly in the December quarter.
“It’s not so much the results themselves, but the strength and conviction around the forward statements.”
Goodson said it would take until the second half of this year for the full impact of the Reserve Bank’s sharp rate cuts to take effect.
“So that’s probably the single key thematic at the moment.”
A2 Milk, which listed on the NZX back in 2004, is set to announce its first dividend at Monday’s first-half result.
And with $968.9 million sitting in the bank (at last count) - why not?
Last November, a2 Milk said its 2025 full-year revenue guidance was trading ahead of plan.
Its previous guidance, issued in August, was for mid single-digit revenue growth in 2025 versus 2024.
A2 Milk’s new dividend policy targets a payout ratio range of between 60% and 80% of normalised net profit.
Aside from its dividend plans, a2 Milk has also raised the possibility of supply chain acquisitions or joint ventures to augment its Mataura Valley Milk facility in Southland.
Forsyth Barr senior analyst Matt Montgomerie said he’s not expecting any surprises on Monday, relative to consensus expectations or the company’s own guidance.
“This is a brave assertion to make given a2 Milk’s track record on result days, but the (still) pending supply chain acquisition/JV is the main area of possible surprise,” he said in a preview.
He said the key focus areas were a2 Milk’s supply chain updates, China label infant formula revenue, and the English Label (EL) outlook in light of the new Genesis HMO product, a milk drink aimed at toddlers aged 1 year and over.
The market consensus for Monday’s result is for half-year of revenue of $870.2m, up from $812.1m a year earlier, steady underlying Ebitda (earnings before interest, taxes, depreciation, and amortisation) at about $113.8m, up 2%, and a net profit of $77.7m, up 1%.
The company’s first dividend is expected to be about 7c a share.
For the big power generators, the second half of last year was fraught with challenges - a gas shortage, coupled with very low lake levels and light wind conditions - which saw wholesale prices go through the roof.
This week, the big four power companies said they had teamed up to look at ways of extending the life of Genesis Energy’s coal and gas-fired Rankines at Huntly to improve security of supply.
“I think it sort of really illustrates in New Zealand where it’s absolutely in the country’s interests that those turbines be refurbished and still be around come 2040,” Salt Funds' Goodson said.
“Clearly, it’s going to need Commerce Commission authorisation to do so, so there is this really interesting tension between market efficiency and the best outcomes versus competition.”
In terms of first-half results, Contact gets the ball rolling on Monday.
At the end of this month, Mercury is expected to drop out of the influential MSCI Standard Index, to be supplanted by Contact.
Big volumes of stock look likely to trade, courtesy of the influential passive funds, in the lead-up to the change.
On the international scene, the big issue facing investors is what the US Federal Reserve does next after a surprisingly strong inflation outturn - 3% for the year to January - which drove US 10-year bond yields up by 10 basis points.
The market had been pricing two more rate cuts this year from the Fed, but the data, which is yet to reflect the likely inflationary effect of new US tariffs, means people are beginning to question the likely track.
The Reserve Bank of Australia is expected to cut its official rate, which has been at 4.35% since November 2023, on Tuesday with the Reserve Bank of NZ expected to cut its Official Cash Rate by half a percent the following day.
If the differential between New Zealand and US rates widens, still more downward pressure is expected to mount on the already weak Kiwi dollar, which should provide still more impetus for local exporters.
Craigs Investment Partners has downgraded its recommendation in view of Auckland International Airport to “underweight”.
“With the share price up 15% since our last note, we have downgraded our rating from neutral to underweight.
“We think AIA now looks expensive and in the short-term we think news flow will provide more downside risk for sentiment,” Craigs said.
AIA is due to report its interim result on February 20.
Meanwhile, the giant international fund BlackRock has raised its stake in AIA to 9.19% from 8.17%.
Insurance company Tower this week told shareholders at its annual meeting that its strong first quarter reflected year-on-year improvements in business-as-usual (BAU) claims and management expense ratios.
The company had previously updated its earnings guidance on underlying net profit after tax (underlying Npat) for the year ending September 30, 2025.
Tower’s full-year underlying net profit forecast was revised upwards to a range of between $60m and $70m, from the previously advised range of $50m to $60m.
Forsyth Barr said it was a robust first-quarter trading update, which included further detail on favourable BAU claims performance and solid customer growth.
“We see the latter as the key positive takeaway from the annual meeting update,” the broker said.
Tower shares last traded at about $1.46, having gained 123% over the past 12 months.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
Pioneer Ross George is an open book in this interview.