Ryman Healthcare will be facing pressure from higher labour costs and potential fall-out from falling property prices. Photo / NZME
A raft of companies are due to report their financial results in the coming weeks, including market heavyweight Fisher & Paykel Healthcare.
But while their figures are expected to be strong for the six months to March 31, rising headwinds make forecasts increasingly cloudy.
Mark Lister, head of private wealth research at Craigs Investment Partners, says for the bulk of the half-year the economy was in pretty good shape.
"I think generally the results will look strong because the economy was in pretty decent condition through the back end of last year and it has remained so for the bulk of 2022, although I think you will be starting to see and hear about some of the headwinds that are increasing - interest rates and borrowing costs are going up, the housing market has stopped dead in its tracks and taken quite a sharp fall."
Lister says that will be a talking point for Ryman Healthcare, due to report next Friday.
Ryman's share price has taken a beating in recent months and is down more than 40 per cent for the year to date.
Lister said the company had gone through a big change in its management team in recent years, and will have been grappling with staff shortages and other labour issues.
"They also, whether they will admit it or not, are a business that is impacted by the path of the housing market, and at the moment it feels like the path of least resistance is downward."
Real estate figures out yesterday painted a bleak picture for the housing market.
The REINZ House Price Index, which measures the changing value of residential property nationally, showed an annual increase of 6.3 per cent from 3774 last April to 4013 last month, but it is down 6.2 per cent from its peak in November 2021.
Adrian Allbon, director of equity research at Jarden, said he expected Ryman's result to be solid with good net profit growth and further growth in net tangible assets per share. However it was facing forward pressure from weakening house prices, rampant inflation in construction costs and higher operating expenses on the nursing side.
"The hard judgment with that is has the price weakened enough to capture some of those pressures? Or are we still at risk of further subdued overhang?
"Ryman is definitely one that not only us, but the market will have a strong watch-out for.
"The price has come back a long way. It is caught between a rock and a hard place with its capital structure versus being able to deliver on previous growth expectations at least."
In the past, there has been talk from analysts that Ryman could raise capital.
But Allbon said the company sent a clear signal at its last result about trimming its dividend policy.
"Our base case would be they probably try and continue to muddle through at a lower growth rate."
Lister said he would be closely watching Mainfreight's result due to its global reach.
"It has a big European business, and supply chain challenges and opportunities are good and bad for them."
Allbon said his expectation was for a stronger-for-longer outlook as freight disruption continued.
"I would expect to see good evidence of [market] share gains with their higher service proposition resonating well in an environment like this."
He said the key open question for Mainfreight was to what extent, when and how its business normalised again after getting a strong boost from Covid-driven freight disruptions.
"They have got an air and ocean business which has disproportionately benefited from some of the Covid disruption. How that normalises is going to remain an open judgment and I'm not sure this result necessarily will provide a lot of definition on that particular point, it is just a lingering overhang for the stock."
Fisher & Paykel Healthcare is the biggest company by market capitalisation on the NZ market, putting it on most investors' watch-list.
Allbon said the result itself had been largely pre-guided.
"They had a revenue downgrade in the middle of March," he said. "Our focus will be two-fold: the result itself and how the CEO positions some of the introductory comments around its FY23 outlook."
He said there would be a lot of interest in what the company was finding as it gained access back to hospitals and what the demand was for consumables as the Covid environment normalised.
Unusually, F&P will also hold an investor day the day after its result.
But others are less upbeat. Forsyth Barr analysts downgraded Fisher & Paykel this week, dropping the stock from a neutral rating to underperform and lowering its target price from $25.05 to $20.
"F&P Healthcare's share price has been under pressure year to date; we think there is more to come," they said.
The analysts said there was no questioning the company's quality with its strong competitive positioning, favourable long-term earnings tailwinds, high returns on
capital, and relatively low earnings volatility (pre-Covid).
"We continue to view FPH as well positioned long-term with double-digit earnings growth forecast from FY23 (our view of the new 'base') but expect the next 12 months to be
challenging.
"FPH is trading well ahead of its historic strong relationship with peers, which coupled with the backdrop of negative earnings momentum, and increased earnings uncertainty, we view the risk reward as negatively skewed."
Jarden's Allbon said one of the interesting things about the companies due to report in the next few weeks was that only one had a positive total shareholder return for the year to date - Infratil.
"What is interesting about Infratil - even though they have had an investor day - the result will be an important update on the various processes they have got going which all have positive skews to the valuation case."
Those transactions include Vodafone's tower deal, the potential introduction of the new Longroad equity partner, and more recently a strategic review of Retire Australia.
"They are all quite interesting catalysts that sit within their net equity value sum of the parts. In terms of the ordinary course of business, there will be interest in the maiden guidance they give for FY23 and our expectation would be that Canberra Data Centres ... should indicate it is back into ebitda growth again.
"Outside of that, Vodafone and Wellington Airport all have some elements of reopening momentum. Vodafone has the roaming revenues and Wellington Airport is more of a reopening play as well."
Lister said that outside of the big companies, he had his eye on travel technology business Serko and My Food Bag.
"I think [Serko] is a really interesting recovery stock. If you are looking ahead to the next two or three years as parts of the global economy that have been just completely switched off come back to life, Serko is potentially a strong beneficiary of that.
"We are probably not going to see evidence of that in this result. I'll be really interested in the outlook commentary about what they are seeing in terms of forward bookings. I definitely think it is one to watch for the next year or two."
Lister said for My Food Bag the result would be a good chance to talk about the actual business rather than the furore over DGL's Simon Henry and his comments about Nadia Lim.
"It has been pretty terrible as an investment in terms of how the share price has performed - but the business has gone okay. It hasn't fallen off a cliff the way the share price would suggest - I think in hindsight the lesson for all of us was that it was priced too highly in the first place.
"They have got challenges too like everyone around inflation and food prices. There is a bit of cost pressure coming through."
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