INSIGHTS

MARKET SUMMARY: 28 AUGUST TO 1 SEPTEMBER

Research Team, 1 September 2017

Reporting season trickled to a close this week in Australasia, with just a handful of companies reporting results. Overall, the reporting season has been positive with most companies in NZ meeting or exceeding expectations. This has meant the market has remained in positive territory, even with the lofty valuations seen heading into the earnings season. More than 70% of NZX companies grew earnings in 2017 with an average growth rate of 8.5%.

There were some definite stand outs over the reporting period that were duly rewarded by the market for their respective victories. The two that stand out in this respect are a2 Milk (ATM) and Comvita (CVT). Expectations for both companies’ 2018 earnings were upgraded substantially as ATM continues to see strong demand growth for its products in both Australia and China, while CVT is starting to see a turnaround from the issues it has experienced over the past year.

Unsurprisingly, these two companies are the top performers for the month, both seeing gains of more than 20%. ATM is also the top performer for the year to date, rising more than 160% so far. CVT remains underwater for the year, after being hit hard at the start of the year by the discovery of Myrtle Rust.

Other honourable mentions go to Air New Zealand (AIR) and Tourism Holdings (THL), who both reported better than expected results and provided positive outlook statements as tourism continues to be strong. Both companies have been rewarded with price rises of more than 6% for the month. Summerset Group (SUM) saw a healthy net profit for the year, continuing to see strong growth as the business matures. SUM also provided a solid outlook for FY18.

Of course, we cannot talk about the winners of the reporting season without talking about the disappointments. Metro Performance Glass (MPG) was certainly the biggest disappointment over the period after the company gave a poor outlook for FY18 at its annual meeting. After four months of trading in FY18 MPG citied softer trading conditions in New Zealand and slowing activity in Christchurch as key reasons for the change. MPG’s share price has tumbled almost 28% for the month and is now the worst performer on the NZX50, year to date.

Trade Me (TME) and Sky TV (SKT) were both punished following their results, despite numbers being largely in line with expectations. It was once again the outlook that investors focussed on with both companies expecting increasing competition in their respective fields, which is likely to have a material impact. SKT continued to see a decline in subscriber numbers as competition continues to increase from digital subscription services like Netflix. The company also has to pay more for content, putting a squeeze on margins.

Across the Tasman reporting season wasn’t as bright and cheery as it was in NZ, with a number of high profile companies missing expectations and disappointing investors. Overall, the average earnings growth for FY17 was in line with expectations, this was masked by an exceptionally positive reporting season from the resources sector. Excluding the materials and energy sectors, average earnings missed slightly for FY17, however, the outlook for the coming year saw a significant decrease. Telstra was one of the biggest disappointments and was duly punished by investors after cutting its dividend payout ratio. TLS’s share price has fallen more than 11% in August.

Moving away from reporting season and looking towards global markets, uncertainty has again become a feature. Early in the week, North Korea fired a missile across the northern island of Japan. This sent markets into a spin, and when combined with Hurricane Harvey in the US it has been a difficult week for investors. Tensions eased towards the end of the week and the US market received a boost after President Donald Trump again talked about the need for tax reform. However, given that the healthcare reform he promised is yet to come to fruition, many remain sceptical on the likelihood of this eventuating.