NZ earnings season to show companies chasing sales at expense of profits

Monday 13th February 2012

New Zealand listed companies will show revenue growth in the latest earnings season, though that won’t translate into fatter profits, according to broker Forsyth Barr.

The broker predicts aggregate sales growth of almost 11 percent across 46 companies previewed in the latest earnings season, though net profit will shrink 0.3 percent and earnings per share will decline 1.7 percent. Earnings before interest, tax, depreciation and amortisation are flagged to rise an aggregate 2.6 percent.

“We can expect a cautious tone from earnings season,” said Craig Brown, senior investment analyst at OnePath NZ.

Construction materials supplier Steel & Tube kicked off the seasons last week, posting a 2.4 percent fall in first-half profit to $6.4 million, or 7.2 cents per share, falling in line with its own guidance and in between forecasts by Forsyth Barr and First NZ Capital.

Fund managers have been circumspect about the prospects for company earnings this season, as delays to the Canterbury rebuild weigh on companies looking to cash in on the reconstruction effort, such as index heavyweight, Fletcher Building.

Last week, Fletcher’s stock rose to a four-month high as investors shook off some of their gloom over the delayed rebuild. Forsyth Barr expects Fletcher Building to post a 6.3 percent decline in reported earnings, even as revenue climbs 31 percent. First NZ Capital forecasts a 10 percent decline in net profit for the construction company.

Grant Williamson, director at Hamilton Hindin Greene, said investors have been buying the stock after getting spooked late last year when the construction company downgraded its forecast.

“Investors are starting to wake up to the fact that the Christchurch rebuild will happen,” he said.

Shares in Fletcher Building rose 2.3 percent to $6.73 in trading on Friday.

The economy expanded 0.8 percent in the third quarter, faster than the Reserve Bank had expected. It tips 0.6 percent growth for the final quarter of 2011, with the economy set to pick up pace through 2012.

The earnings season will be Telecom’s first as a standalone retail unit, having carved out its network business, Chorus, into a separate listed entity last year. Forsyth Barr’s Guy Hallwright expects the phone company to post reported profit of $142 million, on revenue of $2.48 billion. The shares fell 0.7 percent to $2.145 on Friday.

Contact Energy, the third biggest company on the bourse, is expected to show a 7.1 percent increase in sales to $1.28 billion, though reported profit is forecast to fall 16 percent to $69.9 million by Forsyth Barr. The stock has been hovering near 8 ½-year and climbed 2.7 percent to $4.94 on Friday.

Mark Lister, head of private wealth research at Craigs Investment Partners, said retailers are still finding it tough, and people are expecting “sluggish commentary” from those companies when they report.

Warehouse Group, the biggest listed retailer, is expected to show a 2.2 percent gain in revenue to $927.9 million, even as reported profit falls 8.1 percent to $48.8 million in a Forsyth Barr analysis. The stock fell 1.1 percent to $2.68 on Friday.

Kathmandu, the outdoor equipment chain, is forecast to show sales growth of 7.2 percent to $136.3 million and a 19 percent drop in reported profit to $8.5 million. Its shares gained 1.7 percent to $1.76.

Hallenstein Glasson, the clothing chain, is forecast to show zero growth in sales and profit at $105 million and $7.8 million respectively, after it reported strong demand during the Christmas and January sales periods. The stock rose 1.4 percent to $3.72 on Friday.

(BusinessDesk)

BusinessDesk.co.nz

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