Earnings season to reflect slow 'grind' out of slump

Wednesday 10th February 2010

New Zealand’s looming earnings season will be likely to reflect a slow “grind” out of the worst recession in 18 years, though the country’s listed corporates should proffer a brighter outlook in the months ahead.

Brokerage firm Forsyth Barr predicts a median 1.1% rise in net profit across 44 firms on the NZX in the six months through December 31 from a year earlier, according to its reporting season preview. The firm’s analysts are picking sales dropped 0.4%, while earnings per share fell 4.2%.

New Zealand companies beat analysts’ low-ball estimates in the last reporting period as smaller profits exceeded expectations amid stern cost-cutting measures by corporates. Still, management teams weren’t keen on providing much guidance to the market, and analysts are picking a brighter outlook later this year will trickle through in this reporting season.

“The results themselves will reflect that that period was pretty tough,” said Craig Brown, who helps manage $3.3 billion at ING New Zealand. “What we will see is some of the benefits of the various initiatives managements have taken to manage their business through the tough conditions.”

Brown said equity markets had a strong rally last year after “Armageddon didn’t happen,” and he expects there to be a lot of interest in companies’ outlook statements and how they see the current economic climate. “We’re all quite happy with a steady grind upwards rather than the massive moves we saw last year” which produced too much volatility in the market, he said.

The benchmark NZX 50 Index confounded strategists last year as it gained 19%, and clawed back about half of 2008’s 35% plunge. Heading into 2009, investors were plagued with fears over the global financial crisis that saw the collapse of the financial sector in the US.

Guy Elliffe, head of equities at AMP Capital Investors predicts earnings will be “in line with expectations,” and investors will be “more focused on guidance”.

“We’re getting more confidence from the management we speak to than three months ago” which should lead to more depth in companies’ outlook statements, he said.

Elliffe said New Zealand stocks are currently about 10% under-valued. AMP Capital is slowly reducing its overweight holdings in equities, though it expects equities to outperform other asset classes this year.

Steve Walker, head of asset management at Goldman Sachs JBWere, said investors shouldn’t place too much emphasis on short-term earnings but rather should look at the long-term trends when making their picks.

“The market’s under-stating the longer-term earnings pickup or just mis-pricing some companies,” he said. This earnings seasons will be “reasonably good, not superb but solid.”

Brokerage firm First NZ Capital’s outlook for the earnings season is broadly in line with rival Forsyth Barr, with its median forecast for net profit down 1.3% from the corresponding period last year. Its earnings preview was across 18 companies listed on the NZX.

Steel & Tube Holdings and Tenon, whose chief executive Mark Eglington resigned last year, will kick off the season proper tomorrow, with both tipped to show weak earnings. The shares were unchanged at $2.80 and 84 cents respectively.

Telecom may report an 18% decline in first-half profit before one-time items to $248 million, according to Forsyth analyst Guy Hallwright. He expects the company to reiterate its full-year guidance of $400 million to $440 million.

Last week, commercial landlord AMP New Zealand Office Trust reported a $27.8 million net loss in the six months through December, compared to a $4.97 million loss a year earlier after it recognised a $63 million decline in the value of its property portfolio. Its distributable profit, the preferred measure among property trusts, rose 18.5% to $32.1 million. The shares sank 2.6% to 74 cents on the stock market today, and have declined 2.6% this year.

Children’s clothing chain Pumpkin Patch, which was one of the top picks in 2009, will probably boost its reported profit 43% according to Forsyth Barr analysts, and Walker said he expects it to do “quite well given other retailers’ strength.” The shares were unchanged at $1.90 in trading on the NZX today, and have dropped 7.3% this year.

ING’s Brown said retailers will probably outperform other sectors this season, with all the major outlets, excluding Warehouse Group, recording sales growth.

Shares in the country’s largest listed retailer rose 0.5% to $3.80 on the NZX today, and have tumbled 10% this year.

Businesswire.co.nz

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