Roy Davidson, 19 June 2020

Fisher & Paykel Healthcare and a2 Milk dominate the NZX 50 – an index of New Zealand’s 50 largest listed companies. The two companies have a combined market cap of over $30 billion and comprise more than a quarter of the index.

Both companies have been net beneficiaries of the impact of COVID-19. The fact both have found favour with investors through COVID-19, at a time when other large companies such as Auckland Airport have suffered sharp demand shocks, has seen the relative size of each push to new levels.

Fisher & Paykel Healthcare has seen a surge in demand for its humidifiers that are used in tandem with mechanical ventilators, along with a jump in sales of its own nasal high flow oxygen therapy system – called Optiflow. a2 Milk, while not as clear a beneficiary, saw stockpiling of its infant formula from Chinese customers and is well placed to get through COVID-19.

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However, this dominance is not entirely new. For instance, at the founding of the NZX 50 index in 2003, Telecom (now split into Spark and Chorus) was the largest company on the sharemarket by some distance. Incredibly, it made up more than a quarter of the index all by itself. If you were to invest $100 in the New Zealand market, $25 of that would go to one company alone.

Ten years ago, both Telcom’s and Fletcher Building’s weights in the NZX 50 were around 13 per cent, putting them in the same ball park. While both are still large companies and comfortably sit in the top ten largest companies today, they now significantly lag Fisher & Paykel Healthcare and a2 Milk. This demonstrates how times have changed and how some industries have increased in importance while others have struggled to grow.

Both Fisher & Paykel Healthcare and a2 Milk are also good examples of companies identifying large offshore markets that they can compete in, and then nailing their execution.

Fisher & Paykel Healthcare has steadily built its leading positions in hospital ventilation and sleep apnoea, becoming our largest company in the process. By contrast, a2 Milk’s ascent occurred almost overnight, with the company profiting handsomely from Chinese demand for its premium infant formula.

Meanwhile, other, more domestically focused companies, have naturally hit a growth wall. Others haven’t quite got the execution right. 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 and changing customer preferences, 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.