South Island Companies Turn The Corner

South Island Companies Turn The Corner
Deloitte South Island Index for year to 31 March 2010 released

The outlook is looking brighter for South Island listed companies although some uncertainty in the market still lingers, according to the Deloitte South Island Index Year in Review.

The report was released at a function in Christchurch today attended by Finance Minister Hon Bill English and more than 150 South Island business leaders. It showed the South Island Index ended the year to 31 March 2010 25.0% higher than at 31 March 2009, a market capitalisation increase of $835 million to $4,169 million.

While larger companies were mostly responsible for the increase in market capitalisation over the year to 31 March 2010, more than half of the 32 companies included in the index either increased or maintained their market capitalisation in the previous 12 months.

Paul Munro, a corporate finance partner in Deloitte’s Christchurch office, said the increase in market capitalisation in the past six months in particular has been in stark contrast to the performance in the year to March 2009, when “red arrows” dominated the market.

“The past year has, on the whole, been positive for listed companies. This indicates that the recession is technically over but the outlook for the economy is still uncertain,” Mr Munro said.

It is likely there will be patchy and volatile growth in the year ahead, but with economic recovery beginning to take hold in some countries the coming year could be one of opportunities, particularly for export companies, he said.

“The year ahead will be a time for businesses to begin to refocus on their key strategies.”

The performance of the South Island’s 32 listed companies in the year to 31 March 2010 was on a par with the growth in the NZX 50 of 26.2%, but still lagged behind Australia’s ASX All Ordinaries Index (up 38.5%) and the Dow Jones, which increased by 42.7% over the same period.

The majority of the movement by South Island companies came in the latter six months of the year, when the Deloitte South Island Index grew by 20% compared to a 3% increase in the NZX 50, suggesting the South lags behind the rest of the country by about six months.

Mr Munro said it was encouraging that there were positive movements in all eight industry sector groups of the Deloitte South Island Index, with the biotechnology and financial service sectors both nearly doubling their market capitalisation in the year to 31 March 2010. The growth in these two industry sectors was driven by the performances of Pacific Edge Biotechnology Limited (up 210%) and BLIS Technologies Limited (up 87%) in biotechnology, and in the financial services sector Pyne Gould Corporation Limited (up 109%) on the back of capital raising activity.

It was a relatively disappointing year for primary sector companies, however, with growth largely due to PGG Wrightson raising approximately $180 million under its right issue. It had also been a challenging year for the ports sector as a whole, but both Lyttelton Port Company Limited and South Port New Zealand Limited had positive movements in market capitalisation.

The South Island’s standout performer, Ryman Healthcare, produced another strong performance, gaining $330 million in market capitalisation (47%) and it continued to rank number 1 in the Deloitte South Island Index with a total capitalisation of $1,035 million as at 31 March 2010.

In another pleasing trend, the retail sector was the strongest performer in the first quarter of the 2010 calendar year, increasing by 18%. This was largely due to a strong trading performance by Kathmandu Holdings Limited, which announced in mid-March a nearly 50% increase in normalised earnings before interest and tax for the six months to 31 January 2010.

To see the full report, Deloitte South Island Index: Year in Review, go to www.deloitte.com/nz/southislandindex

Year to March 2010: Movement in Sector Indices

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Year to March 2010: Deloitte South Island Index vs NZX 50

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