REPORTING SEASON DELIVERS
Mark Lister, 31 August 2017
The August reporting season is now complete and for the most part, it was a fairly good one. Most companies met or exceeded expectations, while growth forecasts for the coming financial year were upgraded slightly. As a result, the market held it’s own despite some high valuations and lofty expectations.
As always, there were some hits and misses at a company specific level. a2 Milk and Comvita were two companies that stood out at the positive end of the scale.
Both saw analyst estimates for their 2018 earnings upgraded substantially, with a2 again blowing expectations out of the water and Comvita beginning to recover from the issues of last year. Both saw big share price gains during August as the market gave its approval.
Other notable positives came from Summerset, Scales, Air New Zealand and Tourism Holdings. These four saw healthy upgrades to future earnings estimates on the back of strong results, with the last two clear beneficiaries of very solid visitor numbers.
Market operator NZX posted one of its better results in recent years, and is hopefully set for a period of improved performance under fresh leadership.
The electricity companies were all quite solid too, as should be expected. Contact Energy was the pick of the bunch for many, with some long awaited changes to dividend policy a boon for shareholders.
Similarly, we saw very respectable results from traditionally reliable performers Auckland Airport, Ebos and Port of Tauranga.
At the other extreme, Metro Performance Glass was the worst performance in the NZX 50 index. The company didn’t report a result, although the annual meeting trading update was poor. Metro remains another example of a company unable to capitalise on the strong construction backdrop of recent years.
There was a ‘disruption’ theme running through the market in August, with Sky TV and Trade Me two of the weaker performers. Their results weren’t too bad actually, especially in the case of Trade Me. However, there is increasing uncertainty on what the likes of Netflix, Amazon and Facebook will mean for their businesses in the coming years.
Amongst the larger companies, Sky City and Chorus also came out on the wrong side of the ledger. Our only casino operator continued its recent tradition of missing expectations and disappointing investors, while Chorus proved not quite the predictable utility shareholders were hoping for this time around.
Overall, investors will be comfortable with how the reporting season panned out. More than 70 per cent of NZX 50 companies grew their earnings in 2017, and the average growth rate was 8.5 per cent. That’s slightly better than what was predicted before reporting season.
More importantly, earnings growth expectations for the year ahead improved to 8.5 per cent as well, up a little from 7.8 per cent a month earlier.
Strong share price gains over the first half of the year had set the bar quite high for the reporting season, and in most respects, corporate New Zealand delivered.