Mark Lister, 24 May 2017

A number of local companies have reported earnings over the past couple of weeks, and there is a few more to come. One I’ll be watching closely comes near the end of the reporting season, and that’s the result from Mainfreight next week.

Mainfreight is one of the few NZX-listed companies with a large European operation, and the result and commentary around this division should provide insights into how things are going in that part of the world.

Europe has been surprisingly resilient this year, and in many ways is now leading the charge on the economic front.

The latest surveys point to activity at a six year high, with new orders strong, price pressures increasing and firms taking on extra staff at the fastest rate in nearly ten years. Business optimism is running high, while overall growth has picked up at a time when the United States seems to have hit a soft patch.

The French election was a key risk, with the potential for a Marine Le Pen victory. With that behind us sentiment has improved further, although European economic data was looking very good even in the lead up to the election.

Put all of that together, and you can see why the euro currency has staged a big rebound in recent months. Against the US dollar, the euro has rallied back to levels not seen since before Trump was elected President. In fact, the recent rhetoric about the greenback slumping isn’t quite correct, as it’s more a case of the euro rising.

This will have benefited local companies exporting to Europe, with the NZ dollar down almost 10 per cent in the last three months, back at June 2016 levels.

Getting a first-hand read on Europe isn’t the only reason I’m interested in hearing the latest from Mainfreight. It’s a very successful company that has delivered an annual return of almost 15 per cent over the last decade.

That’s more than double the overall market, bettered only by a handful of companies of a similar size. A track record as impressive as that commands attention from analysts and investors.

The company has 30 branches and more than 2000 team members in Europe, while almost a fifth of revenues come from the region. Mainfreight isn’t the only company with exposure to Europe. Fisher & Paykel Healthcare, for example, derived almost 30 per cent of sales from there during its last reporting period.

However, being in the logistics game Mainfreight should be in a better position to take the pulse of the economy. Logistics, transport and freight companies are often one of the first to see changes in demand, pricing and activity.

Economic activity in Europe has improved markedly in the last six months, pushing the currency higher as well as sharemarkets across the continent. Europe certainly isn’t out of the woods yet, with the Italian election the one to watch in my opinion.

Still, it’s certainly good news that one of the world’s largest economic regions, not to mention one of our major trading partners, seems to be getting back on track.

This article was published by The New Zealand Herald on 15 May 2017 under the title ‘Mark Lister: Method to RBNZ’s madness’.