Upbeat opening to earnings season contradicts dour confidence surveys

Wednesday 8th August 2018

Earnings season has kicked off in New Zealand and so far business leaders seem to back up Finance Minister Grant Robertson, who downplayed faltering confidence in a speech today.

Robertson told the KangaNews New Zealand Debt Capital Markets Summit in Auckland that he’s talked to business leaders up and down the country and “I’ve consistently heard similar messages: that businesses are optimistic about their own prospects, but they do have some concerns.”

Business confidence has become a political hot potato with surveys like the ANZ business outlook reporting confidence at a 10-year low in July and even the Treasury saying “weaker confidence, in conjunction with other data, highlight the risk that growth over the coming fiscal year may be weaker-than-forecast,” in its latest monthly update.

The first round of comments from business leaders in today’s company results, however, appears to back up the idea that businesses are upbeat about their own prospects, despite the change in government.

Property For Industry lifted its dividend as strong portfolio activity drove higher revenue in the first half of the year and chair Anthony Beverley was upbeat about the second half.

“At a macro level, New Zealand continues to enjoy low levels of unemployment, yet CPI inflation forecasts remain well within the RBNZ’s target band, supporting a continued low-interest rate environment,” he said.

New Zealand’s central bank is due to announce its latest cash rate decision Thursday where it is widely expected to keep the official cash rate at a record low 1.75 percent and signal no change on the immediate horizon.

ASB Bank reported a 12 percent lift in its cash net profit to $1.1 billion and chief executive Vittoria Shortt said “it’s clear that New Zealand’s sound economic fundamentals have contributed to a positive operating environment. Unemployment is at low levels, the quality of trade remains high and the housing market is resilient. These conditions have contributed to a 6 percent increase in lending, supported by a 7 percent increase in deposits.”

SkyCity Entertainment Group's full-year result was ahead of forecast, driven by its international business and its Auckland casino complex, where earnings before interest, tax, depreciation and amortisation lifted 3.7 percent to $260.7 million.

Chief executive Graeme Stephens said he expects a similar “solid performance” from Auckland in the coming year. The company is also looking to grow its hotel business and said it is “actively seeking investment partner for future developments and or acquisitions” as it continues to benefit from a booming tourism sector.

Even Steel & Tube Holdings seemed more optimistic, having raised $20.8 million in the first tranche of a deeply discounted $80.9 million capital raise, saying interest in the stock “demonstrated confidence in the refresh of the board and management and the strategic direction of the company."

In the offer document, the Lower Hutt-based company said “the improving sales trend seen in the last three months of FY18 has continued into the current financial year” and reiterated that its full-year underlying earnings will be slightly ahead of guidance at $16.5 million.

Brad Gordon, an investment adviser for Hobson Wealth Partners, said while the earnings season looks solid so far the "worry is in the more domestic-oriented sectors," such as construction and retail.

He noted that while the construction sector has stood out for downgrades over the past couple of years "arguably that is quite sector related ... they invest in the projects and the costs of doing those projects has blown out."

Fletcher Building's results on Aug. 22 will be closely watched, though few surprises are expected after it set out a five-year strategy to refocus on core businesses, stabilise the construction division, expand in Australia and exit non-core operations in June.

The market reaction has been mixed with PFI last down 0.6 percent at $1.73 while SkyCity is up 2.5 percent at $4.08. Across the Tasman, ASB's parent ASX-listed Commonwealth Bank of Australia is up 2.1 percent at A$74.39. Steel & Tube was last down 8.2 percent at $1.34, still above the $1.05 price in the upcoming rights issue.

(BusinessDesk)

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