Stock Takes: New Zealand reporting season preview, Craigs $55m deal

How well companies managed during the Covid-19 lockdowns will come under the spotlight in the next few weeks, as a slew of annual results hit the market.

Z Energy kicked off the reporting season this week, with a better-than-expected net profit of $57 million for the full financial year to March 31, turning around an $88m loss in the previous year.

Looking ahead, the key results for the market will be from the big guns: Fisher & Paykel Healthcare, Mainfreight, Ryman and Infratil.

Analysts will be keeping a keen eye on whether those results for the March 31 year justify what are elevated share prices in many cases.

Craigs Investment Partners head of private wealth research Mark Lister said he had a “glass half full” view of the economy, which he said was looking solid – outside of tourism.

Business surveys are pointing to a strong backdrop and increasing momentum, while the housing market is likely to remain strong, despite the Government’s attempts to curb it.

Emerging from Covid

Analysts point out that while New Zealand has essentially opened up, much of the world is only now emerging from Covid-19 lockdown.

“The world is opening up in quite a big way, so those with an international exposure will probably see some benefits,” Lister said.

“I’m bullish about the economic outlook globally and locally.

“The other side of that coin is that cost pressures are rising quickly and I have no doubt that you will start seeing that in some of our companies.”

For the most part, company earnings outlooks would point to improving conditions.

Harbour Asset Management portfolio manager Shane Solly said that with valuations looking “full” for some parts of the market, it was time for corporate earnings to do the heavy lifting.

“At a big picture level, investors will be looking for an indication as to whether companies that have been hit by Covid are seeing a recovery and whether companies that have benefited from Covid and the associated policy response are still seeing that positive support,” Solly said.

“There will be questions whether the Covid winners see their last near-term upgrade and whether the Covid losers see their last downgrade.”

Solly said attention was likely to focus on the big cap stocks: F&P Healthcare, due on May 27; Mainfreight (May 26); and Ryman Healthcare late in the month.

Market debutant My Food Bag’s result, due on May 21, will also be closely watched. The company’s offer documents forecast a proforma net profit of $15.6m.

“F&P Healthcare may have further earnings upgrades near-term due to Covid-19 demand for respiratory products, but the question will be is the current earnings growth cycle peaking?” Solly said.

“Mainfreight is likely to continue to benefit from both structural demand for its logistics services and a recovery in global growth.

“Ryman will be contentious, with the market currently factoring in an earnings disappointment,” said Solly.

“It’s a big result season for property sector results, with potential for the impact of Covid to be lower than previously expected.

“And it’s a big result season for the Australian banks – including dual-listed Westpac, which has already reported a better than expected restructuring programme.”

A special spot on the investors’ diary will be reserved for F&P Healthcare – the NZX’s biggest stock by market capitalisation.

“It’s been a strong performer. They have clearly got some amazing products and services and they have saved a lot of lives,” said Solly.

“The question is, does that demand continue at the same pace?”

He noted that Ryman’s share price had underperformed. “The market is wary of them not meeting their earnings forecasts and there are question marks about debt levels in the business.”

Craigs' purchase

Craigs Investment Partners paid $55m to buy the 49.9 per cent of the business previously owned by Deutsche Bank, company accounts have revealed, and the purchase has paid off handsomely.

It was revealed in December 2019 that Germany’s largest bank would sell its stake in Craigs after announcing a shake-up of its global business and cost-cutting measures.

A sale figure was not disclosed at the time. Now, recently released 2020 accounts have revealed the exact amount and the advantages of owning the business outright.

Holding company CIP Holdings made a net profit of $65.4m in the 2020 financial year versus the $12.93m it made the previous year from its 50.1 per cent ownership.

The business had total operating revenue of $174.6m, driven largely driven by fees from investment, which brought in $112.7m. It also made $53.9m from broking and $8m from commissions.

Craigs is one of the country’s largest financial advice and broking firms, and has a private wealth arm with $20b of client funds under management, institutional equities and research, investment banking and QuayStreet Asset Management.

It also has a 50 per cent equity partnership with Wilsons Advisory and Stockbroking in Australia.

Winners & losers

The S&P/NZX 50 index rose by 1.4 per cent last month, bringing the benchmark index’s12-month return to 20.9 per cent.

The April return wasled by structural growth companies, followed closely by cyclicals, while defensive yield stocks lagged, Forsyth Barr said.

Looking outside the 50, small caps had a strong month, with the S&P/NZX Small Cap index up 2.8 per cent for the month.

The largest positive sector contribution came from healthcare, while consumer staples stocks dragged on performance.

April’s top performers included Pacific Edge, up 13.9 per cent for the month; F&P Healthcare (up 12.0 per cent); and Vista Group, up 11.4 per cent. Meanwhile, Pushpay (down 12 per cent); a2 Milk (down 11.3 per cent); and Fonterra Shareholders Fund (down 7.3 per cent) performed the worst.

The main positive contributors to the index were F&P Healthcare, Contact and Mercury, with a2 Milk, Ryman and Auckland International Airport providing the largest negative contributions for April, the broker said.

Annual results coming up:

May 12: Pushpay
May 13: Tilt Renewables, Goodman
May 17: Trustpower
May 19: Argosy Property, Serko, Infratil
May 21: Metro Performance Glass, My Food Bag
May 24: Kiwi Property Group
May 25: Arvida
May 26: Tower, Mainfreight
May 27: Gentrack, F&P Healthcare

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