South Island Companies Defy Drop in Activity

South Island Companies Defy Drop in Activity

Deloitte South Island Index for the September quarter
shows road to recovery continues to be unpredictable

South Island listed companies have mostly rebounded from a mid-year slump but the retail sector continues its decline, according to the Deloitte South Island Index.

The latest edition of the Deloitte South Island Index, for the quarter to 30 September 2010, was up by 8.5% or $348 million in market capitalisation on the second calendar quarter of 2010. The year’s second quarter had seen South Island companies hit a bump on the road to recovery.

Paul Munro, a corporate finance partner in Deloitte’s Christchurch office, says the latest Deloitte South Island Index shows that the recovery continues to be unpredictable, with the index more than recapturing the losses from the previous quarter.

The Deloitte South Island Index has not reflected the recent New Zealand Institute of Economic Research survey which indicated a drop in business confidence and activity in New Zealand, although this may be borne out in the next quarter, Mr Munro says.

Positive growth of the Deloitte South Island Index during the six-month period to 30 September 2010 of 4.3% or $182 million had been in contrast to the NZX 50, ASX All Ordinaries and Dow Jones, he says, which had all experienced modest declines.

Compared to a year ago, the Deloitte South Island Index market capitalisation of $4,457 million was $891 million higher than at September 2009.

“The South Island has fared particularly well this quarter but it would be a brave man who would predict a similar increase in the year’s final quarter,” Mr Munro says. “It will be particularly interesting to see how the retail sector fares, following the quake last month and in the lead up to Christmas.”

The recent earthquake in Christchurch and troubles with South Canterbury Finance do not appear to have had an immediate impact on the trading performance of South Island companies, with the Deloitte South Island Index recording a 4.9% increase during the month of September. There may be a dip in the short term as damages continue to be assessed, but it is likely growth will pick up next year as rebuilding gets into full swing.

Mr Munro says the South Island will continue to be influenced by the strength of the global recovery, and that of the wider New Zealand economy, but the important primary sector continued to show signs of a turn-around.

“There is still a need for growth to be sustained for several consecutive quarters before there can be real confidence that the market is well and truly recovering.”

The best performer in this quarter was Pike River Coal, which increased its market capitalisation by $101 million on the back of positive share price growth. Other notable performers include NZ Farming Systems Uruguay, which made the largest gain in percentage terms (50%, or $51.3 million) following the recent successful takeover bid by Olam International Limited, and Skellerup Holdings, which improved by nearly $50 million or 38.2%.

The most significant decline was experienced by Kathmandu Holdings Limited, which lost 7% or $30 million of its market capitalisation in the quarter after falling short of its earnings forecast due to the tough market and trading conditions.

In terms of sector movements, almost all sectors experienced growth in market capitalisation for the quarter, with primary sector companies leading the way with a 19.9% improvement. The only exception was the retail sector, which fell by 6.8%. The decline in retailing followed a poor performance in the previous quarter, which amounts to a 22.3% drop over the past six months.

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

ENDS

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