ROBUST RESULTS OUTWEIGH DELTA BLUES
Mark Lister, 1 September 2021
The August corporate reporting season has wrapped up, and it was a good one. This has given the local sharemarket a much needed shot in the arm after a lacklustre performance for much of 2021.
It’s somewhat ironic that just as we’ve been plunged into a fresh lockdown, in August the NZX 50 notched up its best monthly performance since November last year.
It’s probably helped that our sharemarket has lagged most others for much of 2021, which might’ve meant the bar set by share prices was more realistic for many.
But still, let’s not take anything away from corporate New Zealand. The vast bulk of our listed companies delivered strong results and issued upbeat outlook commentaries, while coping admirably with the challenges that continue to impact some sectors.
This is another reminder of the solid shape our economy was in as we entered this lockdown, which hopefully puts us in good stead to deal with it and rebound strongly when we come out the other side.
Another important factor to consider is that our sharemarket doesn’t necessarily represent main street New Zealand. It’s dominated by more stable, defensive sectors and by a lot of large business that are considered essential services during times like this.
Property, healthcare, utilities, and infrastructure-style businesses represent more than two thirds of the NZX 50 index, and many of these are relatively unaffected by the restrictions of levels three or four.
In contrast, many small businesses will be finding it much more difficult, unless they have the ability to provide an online or digital offering. My mechanic can’t do that, neither can the local hairdresser or bowling alley.
Sectors like retail, hospitality and tourism aren’t well represented on the local bourse, so its not that the sharemarket is blissfully unaware of the issues, it’s just that it isn’t exactly a mirror image of the economy.
A pause from the Reserve Bank will have also helped sentiment in August, by reminding investors that our central bank (in addition to the Government) stands ready to provide support if required.
However, I wouldn’t count on this being much more than a pause. Recent comments from the Reserve Bank suggest interest rate hikes are still firmly on the agenda, and markets expect a move in early October.
Most share prices have increased so far this month, as investors cheered the good results. Two of the strongest performers have been retirement village operator Summerset and fellow healthcare business EBOS Group, with gains of 17.0 and 15.9 per cent respectively.
The market also liked what it heard from agricultural business Scales and our only listed player in the banking space, Heartland Group. These two have seen their share prices up 9.9 and 16.5 per cent.
Skellerup deserves a special mention for posting another impressive result, while SKYCITY, Vista Group and Port of Tauranga were surprisingly resilient given some of the challenges each of those businesses have been facing.
On the other side of the coin, there actually weren’t too many bad results at all.
The only real blot on the landscape was a2 Milk, which produced some ugly numbers. That was always going to go either way, given the high level of uncertainty which made for a very wide margin of error.
Even then, a2’s post-result share price decline simply unwound the recent optimism fuelled by takeover rumours, and the share price is only down two per cent in August.
On balance, that was one of the better reporting seasons I can recall in recent years. It bolsters the view that many New Zealand businesses are in good heart, and puts us in a good position to navigate the current challenges and emerge stronger.
This article was also published in the New Zealand Herald under the title 'Mark Lister: Robust results outweigh Delta blues'.