Research Team, 25 August 2017

Reporting season has again been the focus for New Zealand and Australia with some of our biggest corporates reporting both full and half-year results during the week. This week has certainly seen some positive results from New Zealand companies, with a2 Milk showing why it has been the market darling of the year so far.

a2 Milk’s (ATM) full year result was cheered by the market, however with much of the good news already priced in from numerous guidance updates, the share price reaction was fairly muted. ATM saw full year total revenue increase 56% and after tax profit up 198%. The stellar performance was driven by growth in demand for its infant formula in both Australia and China. Importantly, guidance for FY18 was positive as the company expects demand to continue to grow. Management reiterated its confidence that the China Food and Drug Administration will continue to let them export infant formula there, which remains a key risk for the company.

Air New Zealand’s full year result was in line with expectations, although slightly below the previous year as increased competition had affected profits. Earnings were the second highest they had been in the company’s history, coming second only to the FY16 result. The board announced an 11-cent final dividend, bringing the annual payout to 21 cents per share. The second half of the year saw more favourable trading conditions and this is expected to continue into next year.

Other positive results on the NZ market include, but were not limited to: Comvita, which gave positive guidance for the full year and expects to return to profit and also pay a dividend in FY18. Tourism Holdings result was also positive, benefitting from an increase in tourism over the year as well as the Lions tour and World Masters Games. EBOS Group continued to show growth and benefitted from the strong New Zealand dollar and some earnings accretive acquisitions.

At the opposite end of the spectrum, Sky TV’s (SKT) result disappointed the market. The company again saw a continued decline in subscriber numbers as competition from digital subscription based services increased. Although SKT has managed to secure the rights for major sporting events, costs have increased for content and its mobile and on-demand services have lagged peers. Management discussed the planned merger between SKT and Vodafone NZ, which was blocked by the Commerce commission in June, and said that opportunities remain for the companies to work together.

There is just under one month to go until the New Zealand General Election on September 23. This week has seen numerous policy announcements from all parties and candidates are making more and more public appearances. The election so far has been full of scandal and drama and this week has been no exception, with the third leadership change since campaigning began as Peter Dunne announced his retirement from politics after 33 years as an MP.  Dunne is the only MP from his United Future party in the current parliament and we have to ask, now that he is gone, could this be the end of the United Future party?

Globally, share markets have been mixed as geopolitical tensions continue to simmer. Political rhetoric from the increasingly unpredictable US President Donald Trump put the brakes on markets again later in the week. At a rally in Phoenix he threatened to scrap the North American Free Trade Agreement and then said he would risk a  Government shutdown to secure funding for his wall along the Mexican border. Although other republicans rebuked the threats, it increased risk aversion for investors.

Volumes have been low and investors have largely stood on the sidelines in the lead up to the Jackson Hole Symposium, which at the time of writing had not gotten underway. Numerous central bank leaders will be talking and although no major policy change will be announced, both Mario Draghi (ECB president) and Janet Yellen (US Fed Chair) will be discussing global financial stability. This is could be the last Jackson Hole conference for Yellen as President Trump contemplates whether to install a new Fed Chair.