INSIGHTS

MARKET SUMMARY: 20 TO 24 AUGUST

Research Team, 24 August 2018

It was a fairly positive week for markets this week. The NZX 50 logged multiple record closing highs, as investors zoned in on reporting season with an abundance of heavyweights reporting. The Australian market also continued to push higher, with the country’s benchmark hitting 10-and-a-half-year highs. While in America, the current bull market is set to become the longest on record, turning 3,453 days old on Wednesday. In that time, the S&P 500 has skyrocketed more than 300%.

This week saw annual net migration fall to 4720 for the month of July, down from 4840 in June. Despite the fall, the number is still high by historical standards. The decrease was mainly driven by non-NZ citizens leaving the country.

Turning to reporting season, market darling The a2 Milk Company said annual profit more than double from last year. Its products are now being sold in 10,000 stores in China and 6,000 stores in the US. Net profit jumped 116% to $195.7m, while revenue was up 68%. Looking ahead, the company said it expects further revenue growth in 2019. The company said marketing investment is now expected to be higher than originally expected in order to build its distribution network more quickly and increase brand awareness. The share price jumped 6.1% on the news and is up 45.6% this year.

New Zealand’s largest building materials supplier, Fletcher Building, reported a net loss of $190m. The company says it won't pay a final dividend but expects to resume dividends in 2019, as the company grapples with problems within the buildings and interiors unit of its construction division. Fletcher is in the middle of an overhaul of its business after facing delays and budget blowouts on several major construction projects. The company has also laid off 90 staff this year as part of a restructuring initiative to save $30 million.

Honey exporter Comvita announced they have returned to an operating profit despite a second poor honey harvest. Net sales increased 19%, with China outperforming as well as a breakthrough in North America, with sales of $26.8m. The company reported a final dividend of 2 cents per share, bringing the total to 6 cents per share. Comvita commented “the history of honey harvests in New Zealand shows that empirically a third consecutive poor honey season is unlikel”. The company is working to reduce the financial exposure in the event of another poor harvest by selecting hive sites that optimise profitability.

Trade Me reported an annual profit rise of 2.3% as revenue rose on higher sales of its premium products. The company announced a special dividend of 22 cents per share, as well as raising its final dividend to 10.5 cents per share. The company expects 5-8% revenue growth in 2019.

National carrier Air New Zealand reported its second highest profit in the company's history, of $540m. The company is awarding staff bonuses of up to $1,800 for all permanent employees. Shareholders will receive a final dividend of 11 cents per share, taking the total ordinary declared dividend for the year to 22 cents per share.

Meanwhile, Mercury fell in the wake of its full year result on Tuesday. The company’s operating earnings lifted 7.3%, driven by abnormally wet conditions in the North Island which pushed hydro generation to record levels. The company also announced that it will not be paying a special dividend due to its team up with Infratil to buy rival Tilt Renewables. Mercury now has the lowest dividend yield within the sector.

This week we also saw the Global Dairy Trade index drop 3.6%, down for a sixth consecutive auction. New Zealand key product group, whole milk powder fell 2.1%. The most dramatic moves at the event saw Butter fall 8.5%, Anhydrous Milk Fat drop 6.9%, while Cheddar declined 4.7%. Rennet Casein was the only product on the day to experience a gain, increasing by 2.8%.

In the week ahead reporting season starts to unwind. However, we will be watching results from Metlifecare, Scales, Tourism Holdings and Vista Group.