Research Team, 24 February 2017

The main focus for local investors this week has been the reporting season with a swag of companies reporting half year and full year results. Companies that reported included some of the largest on the NZX such as Fletcher Building and Spark. It was a similar story in Australia with some of the ASX200’s biggest companies reporting results including BHP Billiton and Woolworths. Although there was only a small amount of local economic data released over the week, there was a Global Dairy Trade auction held mid-week.

Fletcher Building reported its half year result and although it saw operating earnings increase 12% from the prior comparable period, the company’s share price took a dive. The increase was driven by the construction boom in New Zealand and the demand for building materials, and the company reaffirmed guidance for the full year. Investors were disappointed as the half year result missed expectations and there was also an expectation that guidance would be raised. The share price fell as low as $9.45 during trading, however partially pared back the losses later in the day.

BHP Billiton reported its first half result for the 2017 financial year earlier in the week. The mining heavyweight’s net profit was more than double the net profit for the full 2016 year driven largely by the strong rise in iron ore prices as well as coking coal. The result was also reflective of improvements in productivity and a redesign of the company’s operating model. The dividend was increased to 40 cents per share, well above expectations and management said it showed BHP’s commitment to provide strong cash returns to shareholders.

Port of Tauranga had a solid first half result with net profit climbing 8.5%. This gain was reciprocated with an equally large increase in the interim dividend, which was raised 8.7%. It was a positive half for the company with increased container volumes, as well as a rebound in logging traffic. The company is also starting to see the benefits of its capital expenditure programme which included the widening and deepening of the shipping channel, with larger ships now being able to come to the port. Although the share price reaction was fairly muted, it has had a strong run up in the weeks prior to the result, so much of the good news was already priced in.

In other corporate news, Sky TV’s proposed merger with the New Zealand branch of Vodafone was declined by the Commerce Commission this week. Immediately following the decision, the Sky’s share price declined 16%, however, these declines lessened throughout the day.

The latest Global Dairy Trade auction saw a decline in the average price of dairy of 3.2%, as well as a decline in whole milk powder prices which fell 3.7%. It is important to keep in mind that the dairy price is much higher than the lows seen in August 2015 and the GDT price index has been fairly flat since the beginning of the year. Fonterra normally announces an updated forecast for the season payout around this time and analysts are still looking for an increase from the current forecast of $6.00. Adding in the dividend, farmers are currently expecting to receive $6.50 – $6.60 per kilo of milk solids, which will be the highest payout in three years. This is also the first time in three years that the payout has been higher than the estimated breakeven point.

Globally, the US earnings season has all but finished, with only a handful of S&P500 companies still to report. Of the companies that have reported, 52% have exceeded revenue forecasts while 74% have beaten earnings estimates. Aggregate earnings growth so far is 6.9% and ahead of early predictions of a 4.2% increase.

Next week the local reporting season continues, however slows down significantly. There are a large number of important events in the US to follow including several Federal Reserve speakers and the release of its Beige Book. In New Zealand economic news will include the QVNZ house price index and our Balance of Trade.