WHAT OUR LARGEST LISTED COMPANIES TELL US ABOUT CHANGING TIMES
Roy Davidson, 13 November 2019
Looking at the largest and most important companies on the sharemarket is an interesting way to see how times have changed. Even over short time frames, changes in the hierarchy can highlight the rises and falls of different industries and the evolution of consumer preferences.
At the founding of the NZX 50 index in 2003, Telecom (now Spark) was the largest company on the sharemarket by some distance. Incredibly, it made up more than a quarter of the total index. However, with the company being split in two (creating Chorus), revenues from traditional voice services declining, and the market becoming more competitive, Spark now occupies fourth place with a 7.5% weighting. This is still very respectable, and Spark has done a great job in recent years of protecting it earnings, but it is a far cry from the old days.
The trouble is that companies focused largely on the domestic economy (like Spark) eventually hit a wall – their market cannot grow forever. Looking at the present company positions shows that the top two places (based on free-float) are now occupied by companies deriving most of their earnings offshore; Fisher & Paykel Healthcare and a2 Milk. Both sell into very large markets offshore, and have been highly successful doing this.
Fisher & Paykel Healthcare has steadily built its leading positions in hospital ventilation and sleep apnoea, becoming our largest company in the process. However, a2 Milk’s ascent occurred almost overnight, with the company profiting handsomely from Chinese demand for its premium infant formula.
Similarly, the third largest listed company is Auckland Airport. While the company’s operations are located in New Zealand, it has benefitted greatly from the rise of air travel and New Zealand as a tourist destination. Auckland Airport has been a fairly steady climber, occupying fifth position ten years ago, and sixth position in 2003.
The fortunes of two companies provide a good insight into how the consumer environment has changed in recent years.
Firstly, The Warehouse Group, once one of our largest listed companies, now no longer features in the NZX 50. The retail environment in New Zealand has become a lot more competitive while online shopping has significantly changed the playing field, forcing existing retailers to adapt. Unfortunately, The Warehouse hasn’t executed as well as it would have hoped.
SKY TV is another to have a notable fall from grace. Ten years ago, the company comfortably sat in the top ten. However, with the rise of low cost streaming services, the ground has shifted under SKY TV’s feet, and the company has been slow to adapt. While the company has now started to embrace new methods of delivery, it has given its competitors a massive head start. In terms of market value, SKY TV currently sits in 50th place.
The largest companies in the NZX 50 at different times