NZX-listed companies more resilient as weaker kiwi bolsters export outlook
By Suze Metherell
Aug. 31 (BusinessDesk) - Analyst are more upbeat about the prospects for earnings in 2016, upgrading more than half the
firms they cover after the latest reporting season, with the weaker kiwi dollar set to bolster export receipts,
offsetting a slowdown in the domestic economy.
Over the past month, 36 companies on the S/NZX 50 Index reported earnings or held annual meetings, of which more than half had their 2016 earnings outlook
upgraded, Mark Lister, head of private wealth research at Craigs Investment Partners told BusinessDesk. In Australia,
between 25 percent and 30 percent of firms had their outlooks upgraded, he said.
"Most of the results themselves were in line with expectations," Lister said. "Where there was probably a more positive
surprise is where you look at the outlook commentaries which were generally a little more upbeat than expected, given
what we've heard about the economy in terms of the confidence surveys, and the dairy price and so forth we were
expecting companies to be just a little more cautious in how they saw the upcoming year. Everyone was feeling a lot more
positive than we thought they would."
New Zealand's strong growth over the past couple of years is expected to slow down as slumping global dairy prices erode
dairy export receipts, and as the tailwind from the Canterbury rebuild starts tapering off. Ratings agency Standard & Poor's last week said it anticipates gross domestic product will expand 2.4 percent in 2016, slowing from a 3 percent
pace in 2015.
"There’s a lot of debate about how much of a slowdown we’re going to see, everyone agrees that the economy is slowing
from the pace it was growing at a year ago, but some people are expecting a recession, or close to it, and one of the
takeaways from the reporting season is we’re not seeing any evidence of that," Lister said. "Our companies are still
relatively conservatively positioned - no one has got huge levels of debt or that sort of thing - so they’re pretty well
positioned to weather a downturn."
Meantime, the lower price for New Zealand's largest export commodity has led the Reserve Bank to start cutting interest
rates and pushed down the value of the local currency, which supports listed exporters, while imposing higher costs for
importers.
"The lower currency was a definite theme. Firms that are exporting and aren’t related to dairy – they’re all seeing the
benefits from that offshore exposure," Lister said. "We have had such a strong currency for such a long time that a lot
of companies have learned to live with it being very high and now that you’re seeing a bit of weakness they’re very
efficient and running a bit leaner than they probably were 15 or 20 years ago, so they’re reaping the benefits."
Among listed exporters, Fisher & Paykel Healthcare, which sells medical devices and systems for use in respiratory care, acute care, surgery and for the
treatment of obstructive sleep apnea in 120 countries, last week updated earnings guidance by $10 million from its May
forecast. Based on an exchange rate of 65 US cents, operating revenue is forecast to be about $800 million and net
profit between $135 million and $140 million, it told shareholders last week.
Outside the benchmark index, Delegat Group, New Zealand's largest listed wine company, posted a 10 percent boost to
underlying boost to operating net profit after tax to $34.4 million, ahead of the company's $34 million forecast. Scales
Corp, the country's biggest apple exporter, which posted a 61 percent gain in first-half profit to $32.2 million, and
affirmed guidance for stronger annual earnings on the back of a favourable exchange.
Paul Harrison, who helps manage more than $700 million of New Zealand and Australian equities for Salt Funds Management
said the focus of earnings season was on capital management and dividend flows. All of the listed power companies
increased their payout to shareholders, while MightyRiverPower and Meridian Energy declared special dividends this
earnings season, and Contact Energy announced one earlier in the year. Spark New Zealand, formerly Telecom Corp, also
signalled a special dividend in the coming year.
"There was more capital management as well that we saw and the market seems to have been favourably disposed to ones
that confirmed capital management and those that announced new ones, like Spark," Harrison said. “Most of our share
market is electricity generators who are backing off capital expansion plans, but there is still some capex going on.
All shareholders want is the companies to invest the money wisely, and if they don’t find anything then there’s a
special dividend or just keep their dividends from their operating cash flows coming out."
Across the Tasman shareholder demand for cash, rather than companies investing in capital expenditure, has been coined
as a "capex strike" and has some commentators worried about future growth, something that doesn't exist in New Zealand,
both Salt's Harrison and Craigs' Lister said.
“Our economy is in much better shape than Australia so we are not seeing quite that same theme," Lister said. "Most of
the increase in dividends we’re seeing in our companies is actually being driven by earnings that are growing and where
you are seeing additional capital management, like special dividends that is coming from companies that have got very
strong cash flows, strong balance sheets and little need for additional capital expenditure.
Another standout for Lister was Fletcher Building. The construction and building supplies company said operating
earnings excluding one-time items rose 5 percent to $653 million, in line with company guidance and just above the
$651.9 million forecast by brokerage Forsyth Barr.
“I’ve been a bit worried about Fletcher Building because they’ve just been a perennial disappointer – every reporting
season we seem to cross our fingers and hope that they’re turning the corner and then they seem to disappoint us,"
Lister said. "But this time they actually lifted up expectations, which is a good sign."
(BusinessDesk)