NZ automotive stocks have performed well over 2023.
NZ automotive stocks have performed well over 2023.
Despite a middling economy, signs of life have emerged from an unlikely source - the automotive industry.
A handful of auto companies have reported robust results, helped by a favourable regulatory regime.
2 Cheap Cars, after a rough start to life as an NZX-listed company, has been the market’s topperformer so far this year, and Turners Automotive was not far behind.
2 Cheap Cars last month reported a record $3.2 million net profit for the half-year to September 30, an increase of $2.6m over the previous first half.
The company increased its 2024 net profit guidance to above $6.8m, up from between $5.2m and $5.7m as previously advised.
Chairman Michael Stiassny said the company was “very well-placed” to maintain its strong performance in the second half.
“Successfully returned to its profitable ‘no frills’ roots, 2 Cheap Cars’ performance is exceptional and the company is well-positioned to not just withstand but benefit from the economic headwinds New Zealand is experiencing,” he said.
On the sharemarket, 2 Cheap Cars is by far the market’s best performer to date, its share price gaining 176 per cent so far this year.
Turners Automotive’s first-half result reflected a robust performance across its core business segments, with solid growth in revenue and profitability.
The company’s profit before tax grew by 10 per cent to $25.7m, assisted by a 16 per cent lift in total revenue to $214.2m.
Growth was underpinned by a strong showing in the auto retail division, and resilient performances in the insurance segment (despite macroeconomic challenges) and credit management. This was partially offset by a weak period for finance as net interest margin contracted due to the speed of the interest rate hiking cycle.
“The result indicates strategic success in auto retail network expansion, the effective ‘Tina from Turners’ brand development, margin expansion with more owned car sales, and its vehicle sourcing strategy; positioning the company well for sustained growth,” brokers Forsyth Barr said in a research note.
Turners Automotive Group's "Tina from Turners" advertising campaign has been effective.
Turners reaffirmed guidance that its 2024 profit before tax would be above the 2023 figure of $45.5m.
Forsyth Barr marginally lifted its earnings estimate for Turners to $48.2m.
Turners has been another big mover on the sharemarket, with a 29 per cent gain.
S&P Dow Jones Indices has confirmed that Turners will be added to the NZX 50 Portfolio Index and MidCap Index on December 18.
Gains in 2 Cheap Cars and Turners have occurred against the background of an anaemic sharemarket, which is shaping up to finish the 2023 year about where it started.
Colonial Motors loses fizz
For Colonial Motors, one of New Zealand’s oldest companies, the fizz in its earnings was in the previous financial year.
Colonial failed to replicate the previous year’s record $33.3m net profit and 62 cent dividend this time around.
“How do you follow that up in a market where the artificial stimulus has passed and been replaced by negative tax imposts affecting your strongest market segments and a weakening tractor market driven by softer primary produce returns?” chairman Ashley Waugh asked at the company’s annual meeting.
Overall, the company was experiencing a mixed trading environment so far this financial year, and that was likely to carry through to the calendar year’s end.
Colonial expects to have a clearer understanding of the direction of travel by the first quarter of 2024.
“It will be a real challenge to deliver a result at the level we have enjoyed for the past two years while the cocktail of headwinds and regulatory uncertainty continues,” Waugh said.
Will Armstrong’s try listing on the sharemarket again?
New car dealership Armstrong’s pulled its initial public offer (IPO) in March last year due to market conditions at the time, so will the turnaround in automotive stocks encourage the company to reconsider?
Armstrong’s chief executive Troy Kennedy said the company was seeing quite strong demand for electric vehicles (EVs), plug-in hybrid electric vehicles and other hybrids as a result of the new Government’s announcement that it will drop the clean car discount scheme at the end of this year.
Generally, the clean car rebate has supported strong sales of EVs and hybrids under $80,000, he said.
“I do expect the removal of the discount and the eventual addition of road user charges to change the affordability metric for EVs,” Kennedy told Stock Takes.
“In the near term, I expect to see hybrids being a popular choice, and also expect a resurgence of utes in 2024.
“Government regulation and the clean car discount has definitely stimulated parts of the market.
“With regards to the potential IPO for Armstrong’s, this is still on pause and not something we are considering at this present time.”
In the meantime, the group would continue to push its organic growth strategy, with a number of building projects underway, including the construction of a new dealership in Botany, Kennedy said.
According to Motor Industry Association data, total new vehicle registrations for November came to 14,519 units, up from October’s 12,944 units.
June 2023 was the biggest month on record for new vehicle sales (23,560 units).
National has promised to axe the scheme for discounts on electric vehicles and the “ute tax” within its first 100 days in office.
Environmental, social and governance credentials rated
Despite economic uncertainty, geopolitical tensions and a nationwide election, New Zealand companies have continued to advance carbon, environmental, social and governance (C&ESG) practices throughout 2023, Forsyth Barr said in its latest analysis.
“The necessity for strong C&ESG credentials is clear and supported by a range of established drivers, including NZ’s new Climate Disclosure Standards (CDS).
“Companies are making robust commitments, strengthening policies and embedding widespread action into business-as-usual (BAU) conduct.
“Even with a heightened focus on greenwashing, momentum continues to build,” the report says.
Forsyth Barr said the top three performers were Meridian, Tourism Holdings and Precinct Properties.
Wine company Delegat Group showed the best improvement.
Other companies notable for their improvement included Property for Industry, Winton Land, Infratil and Serko.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
