Mark Lister: Reporting season could bring surprises

Tourism is a sector where one would think profits have been easy to come by of late, Mark Lister writes.

The local corporate reporting season ramps up in the next week or two, and this should provide plenty of fodder for investors, analysts and market watchers.

While we might see a slowdown in the pace of earnings growth, it should generally make for encouraging reading.

The economy finished last year in solid shape with growth ticking over nicely, business confidence at high levels and the labour market strong. Dairy prices are well up on six months ago, and rising house prices are now a nationwide story instead of an Auckland one.

However, there are bound to be a few surprises. Some of the fan favourites might disappoint, while for others expectations are low enough that even an average result will be well received.

We had a taste of things to come with Metro Performance Glass last week. A profit warning saw earnings forecasts cut by ten percent, taking investors by surprise and causing a hefty fall in the share price.

Looking at the all of the economic data we see, you'd be forgiven for thinking Metro would be doing pretty well at the moment. The construction sector is firing on all cylinders, record migration is driving a building boom and the Christchurch rebuild is ongoing.

For various reasons they aren't capturing the benefits of those tailwinds, so Fletcher Building will be closely watched to see if they've been able to reap the rewards.

There are a few other sectors where one would think profits have been easy to come by of late. Tourism is one, with visitor numbers looking very strong over the last several months. You would think Auckland Airport, Tourism Holdings and Air New Zealand are well placed to gain from this, despite the latter facing some stiff competition.

The currency will get a bit of attention during management outlook commentaries, with the NZ dollar recently hitting levels not seen since early 2015, on a trade weighted basis. This will be creating headwinds for exporters, particularly those selling into the UK. The kiwi is up close to 30 per cent against the pound from a year ago.

I'm sure we will see some predictably good results from some of our blue chips, such as Port of Tauranga, plus Mainfreight when its turn comes in May. Problem is, they have been such outstanding performers this year that the market has now set the bar high. With share prices having rallied to new records, there isn't much room for disappointment.

When the dust has settled, I think this reporting season will have been a relatively steady one.

Mergers and acquisitions will be in focus, with the deadline for the Commerce Commission decision on Sky TV and Vodafone smack in the middle of reporting season. The final verdict on NZME and Fairfax isn't far behind in mid-March.

When the dust has settled, I think this reporting season will have been a relatively steady one. It will reflect an economy on a sound footing, a corporate sector in good health, and interesting growth opportunities across a number of industries.

There will almost certainly be a few hiccups, but it will provide a welcome focus back to genuine business fundamentals here at home, rather than speculation about what might be taking place internationally.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.