What to expect this earnings season

Fletcher Building is expected to announce a positive result based on the booming construction market. Photo / file

Retailers and building sector businesses are expected to provide bright spots in the upcoming reporting season while tourism and border exposed businesses continue to do it tough.

A raft of major listed companies are due to release their largely half-year financials from February 15 with all the major power companies expected to report as well as A2 Milk, Fletcher Building, SkyCity Entertainment and Auckland Airport.

Adrian Allbon, director of equity research at Jarden, said those companies that were tourism-related and border exposed would have earnings results that were likely to have been hammered.

"They will be down over 100 per cent, which is what you would expect."

Allbon said those companies included Auckland Airport, Air New Zealand and Tourism Holdings.

This time last year the Covid-19 outbreak had only just started to become a big worry and company results largely did not reflect any of the impact.

"This is probably the first season where you get quite a disparity in terms of earnings outlooks between the ones that are Covid exposed and the ones that are not."

Allbon said it was difficult to recommend stocks like Air New Zealand when the company still had to sort out its capital structure.

The national airline has a $900m government loan but hasn't updated the market recently on how much of that it has drawn down on and what it plans to do once it has burned through that cash.

"We have got a sell rating on it and our target price is well below what the share price is at."

Allbon said the likes of Tourism Holdings was a bit more up the spectrum as it was well-managed. "They have done a great job on the capital base and it is essentially in hibernation mode."

Auckland Airport was also exposed but he said it was a bit more debatable how attractive the shares were.

"It is obviously a high-quality infrastructure base. But we think it is a touch expensive, we think the earnings will fade a little bit as people push out their border assumptions. But fundamentally it is a stock we would like to own again at some point."

Auckland International Airport is expected to do it tough this reporting season. Photo / file

Jarden's reporting season preview report picks Fletcher Building, Spark and Ebos as having the potential for upside.

Allbon said this time last year Fletcher Building was shutting down its operations but was now benefiting from a booming housing market.

"That is one where it is in this Goldilocks period where they had trimmed the cost base much more dramatically down to a Covid-impacted activity level, and actually the activity level has been much stronger than anyone expected."

He said seven or eight months ago everyone hated the stock at $3.50 and now it had the potential for further upgrades.

Allbon said retailers will have benefitted from strong domestic spending.

"They have just had an unbelievable amount of stimulus benefit from the general economy but the more open question with them is just have they got enough stock to keep it all going?"

Freightways was expected to produce good result and it was typically seen as a bellwether for the domestic economy.

Allbon said Ebos could benefit from the vaccine roll-out. "It is in Ebos' competency set absolutely. The hard thing to know at the moment is how will the Government look to distribute it? "

"They have got 65 per cent market share across both countries [Australia and New Zealand] and that sort of space and have got a good track record of effectively delivering as well."

Allbon said stocks which were difficult to forecast at the moment were A2 Milk and the power companies.

He said A2 had already given guidance in December of its financials but it was more about how the company was going in rebooting its Daigou market.

"The gentailers are quite difficult as a sector. There has been quite a lot going on there which is unusual."

Exchange-traded funds had been buying shares in some of energy stocks, the Tiwai deal meant some would have to come back and reaffirm dividends and all were signalling they would like to build new generation facilities, he said.

"All of that stuff is quite difficult to calibrate."

Analysts at Forsyth Barr are forecasting revenue growth of just 1.1 per cent across the 39 companies they cover with a decline in earnings before interest tax, depreciation (ebitda) and amortisation of -0.8 per cent.

Excluding forecasted loss-making companies Auckland Airport, Air New Zealand, New Zealand Refining, Scales Corporation and Tourism Holdings, it expects revenue to be up 2.4 per cent and ebitda to rise 5.8 per cent.

"The upcoming reporting season has analysts forecasting low single-digit EPS [earnings per share] growth at a median level and negative double-digit growth at an aggregate level, " Forsyth Barr analysts Matthew Leach and Liam Donnelly said.

"Excluding loss-making companies, aggregated growth remains negative, albeit reduced to single figures."

Companies which they expect to have a positive bias include Briscoe Group, Freightways, Michael Hill Jeweller and The Warehouse Group.

Leach and Donnelly said when it came to the retailers the strength of consumer momentum continued to surprise with the potential for further positive revisions should it continue.

Freightways also had the potential for positive upside with a strong tailwind momentum from parcels.

The analysts were also slightly positive on Fletcher Building and Steel and Tube.

"New Zealand residential activity has been strong and leading indicators such as residential consents have remained at record levels."

But they have a negative bias on New Zealand King Salmon and a slightly negative bias for Auckland Airport and Air New Zealand.

"The international aviation recovery profile looks set to be pushed back further with the prospect of a permanently open transtasman bubble increasingly less likely."