Investors expecting growth in earnings

23:59, Aug 10 2014

Analysts are expecting a solid if unspectacular set of results from companies reporting over the next few weeks.

"At the average it looks OK," said Forsyth Barr's head of private wealth research Rob Mercer.

With the market up 7 per cent so far this year, on top of a stellar 2013, companies will have to show continued progress in revenue and profit growth, said Mark Lister, head of private wealth research at Craigs Investment Partners.

"The market wants to see earnings justify those valuations."

Ricky Ward, New Zealand equities manager at JBWere, said the market was expecting earnings growth of 7 to 8 per cent on "modest" revenue growth.

While investors would want to see continued sales growth, another area of focus would be the potential for companies to increase dividends, he said.


"There's plenty of scope for companies to do that.

"Of particular interest in that respect will be the likes of Sky TV."

The pay TV company had alluded to becoming more of an income generator than a growth stock, said Ward.

Sky TV is due to report its full year results on August 22.

Another company whose result will be closely watched, for different reasons, is SkyCity.

The casino group had gained a fickle reputation, said Ward, and some analysts had reduced their expectations.

"I get the impression from talking to the market that people are starting to throw their hands in the air on it."

In a research note discussing the forthcoming earnings season, Forsyth Barr said SkyCity was expected to produce a "soft" result. Factors affecting the trans-Tasman group included the high New Zealand dollar hitting reported earnings from Australia and a lack of growth from the New Zealand economic recovery.

Forsyth Barr's Mercer said the general mood of the market was "way more positive than the underlying earnings of the market."

That was understandable, "because we're all positive, too, on the medium term outlook." But the market appeared to have already priced in those prospects, he said.

Bellwether stocks such as Fletcher Building and Freightways would be closely watched but there appeared to be no overarching theme to market expectations, with performance tending to be stock-specific.

The reporting season mainly follows the fortunes of listed companies with a June 30 balance date, which are required to report preliminary results within 60 days.

Analysis by Forsyth Barr widens the net to include 48 companies reporting up to October 23. Of those, 11 were expected to report second half earnings up more than 15 per cent on the first half, including Meridian, Mighty River Power, Air New Zealand and PGG Wrightson.

Meanwhile, 13 were expected to report earnings down at least 20 per cent over the same period.

"That's quite a large number, certainly a larger number than we would have anticipated," said Mercer.

The decliners included A2 Milk, the Fonterra Shareholders Fund, Warehouse Group, Kathmandu and Pumpkin Patch.

"The pressure point's in retail," said Mercer, although there were exceptions such as Briscoe Group.

Lister said investors were likely to look closely at companies which listed in the last year, with the main focus on whether they meet prospectus targets.

Particular attention would go on Meridian, Mighty River and Genesis.

"I think we'll see good results from all those companies, Meridian in particular."

By contrast, companies with exposure to Australia, such as Fletcher Building and Ebos, would be hit by its weak economy and the high exchange rate.


Companies reporting this week


TOMORROW – Summerset Group, PGG Wrightson

WEDNESDAY – SkyCity, Property for Industry, Precinct Properties, Opus International, GPG

THURSDAY – Vital Healthcare, Nuplex

FRIDAY – Michael Hill International, Steel & Tube