South Island Companies Hit Bump in the Road

South Island Companies Hit Bump in the Road
Deloitte South Island Index for the June Quarter of 2010 Reflects National Dip in Business Confidence

The previously upbeat outlook for South Island listed companies has been hit by the recent loss in investor confidence, according to the Deloitte South Island Index.

The latest index, for the quarter to June 2010, was down by 3.9% or $166 million in market capitalisation on the first calendar quarter of 2010. The year’s first quarter had indicated South Island companies were entering a brighter phase and on the road to recovery.

Paul Munro, a corporate finance partner in Deloitte’s Christchurch office, says the latest Deloitte South Island Index figures reflect recent indications of a dip in business confidence.

Growth during the six month period to 31 March 2010 had been wiped out in the latter two months of the June quarter, he says. Compared to the previous year, however, the index market capitalisation of $4,109 million was $385 million higher than at June 2009.

“The uncertainty in the market that we signalled in our annual report on the index in April has come to fruition this quarter,” Mr Munro says.

While the decrease in market capitalisation in the past three months was worrying it wasn’t as significant as the national trend, with the NZX 50 falling by 9.1% in the same period, he says.

Hardest hit in the South Island were Kathmandu Holdings (down $86 million or 17%), Pyne Gould Corporation (down $77.4 million or 21%), and PGG Wrightson (down $53.1 million or 12%).

Companies that had bucked the downward trend this quarter had done so largely through capital raising activity, such as New Zealand Windfarms and Pike River Coal, while Skyline Enterprises, NZ Wool Services and Skellerup Holdings all experienced increasing share prices.

Mr Munro says it is likely that growth will continue to be patchy in the coming months, and will inevitably be influenced by the strength of the global recovery, but some sectors were already showing signs of a turn-around.

“What we are seeing now is the South Island economy bumping along the bottom, albeit it appears with some insulation from the more volatile national picture,” Mr Munro says.

“This means that growth will need to be sustained for several consecutive quarters before there is real confidence that the market is recovering.”

In terms of sector movements, the biotechnology and development sectors experienced small growth, following declines in the previous quarter, while the financial services and retails sectors had greater than 15% declines in the June quarter.

To see the full Deloitte South Island Index quarterly report, go to www.deloitte.com/nz/southislandindex.

ENDS

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