Two-year sweet spot predicted for NZX

18:01, Mar 02 2014

Analysts say the sharemarket could be in a "sweet spot" for the next two years as the reporting season winds up on a moderately strong note.

Most listed companies reporting interim results in February met or exceeded market expectations, heightened by positive economy forecasts.

Nick Dravitzki, of Devon Funds Management, said there had not been "any absolute shockers, [though] some of the bigger companies have had modestly disappointing [results]".

"Because we're starting to see some momentum in the underlying economy, there are expectations that earnings will be growing reasonably quickly."

Andrew Bascand, of Harbour Asset Management, said generally earnings had been slightly better than expected. Firms with Australian operations faced tough conditions and currency impacts but there was a general theme of improving margins.

"New Zealand companies still have plenty of margin upside given the strong growth outlook."


Bascand estimated profits for the market as a whole were about 1.5 per cent lower than expected, due to disappointing performances from a handful of big players, such as Fletcher Building, Telecom, Contact, Trade Me, Sky City and Nuplex. That was offset by strong performances from Sky TV, Meridian and Auckland Airport.

Dravitzki said Sky TV's results had been "surprisingly good" as more subscribers migrated to its higher value MySky service.

SkyCity had already flagged a softer result due to currency headwinds in Australia, and struggled with flat domestic growth.

Trade Me's profit was also softer than expected, due to flat revenue growth from general items auctions and the increased cost of adding more services.

Investors had expected a poor performance from Trade Me "and they got it," but they still appeared to like its story, Dravitzki said.

Fletcher Building and Telecom were slightly underwhelming "but in both cases, full-year expectations have remained pretty consistent".

Analysts also noted Air New Zealand's record interim result, which posted a 40 per cent jump in net profit.

Paul Harrison, of Salt Funds Management, said Air NZ and Freightways were two of several companies that saw improvement in the second quarter.

"There was enough in what's been seen in the season to keep investors in a positive state of mind."

Mark Lister at Craigs Investment Partners said the season had "many more positives than negatives". There had been pockets of strong results like Air NZ's and Meridian's, and others were "simply in line with expectations" like Mighty River Power, Auckland Airport and the Port of Tauranga.

Lister said Kiwi firms were heading for a "period of prosperity" for a couple of years.

"Partly because Christchurch is adding some momentum to the construction sector and that will be more than a six-month story . . . you've also got the export sector looking in very good shape and that's a slightly longer term theme as well."

Missing from the slew of results were Xero, Ryman and Fisher & Paykel Healthcare, whose balance dates were different.

The Dominion Post