The corporate reporting season gets underway Monday, with the market focused on how well companies have been managing costs, and the outlook for the rest of the year.
Most of the NZX’s top 50 companies will be filing financial reports covering the final six months of 2022, when the economy was still growing and many companies were benefiting from the easing of Covid-19 restrictions.
But the Reserve Bank’s forecast for a recession from the middle of the year, with rising interest rates, high inflation, a tight labour market and geopolitcal uncertainty were expected to test companies’ economic resilience.
Still, Craigs Investment Partners investment director Mark Lister said many companies were expected to deliver solid results, particularly those that benefited most from the rebound in tourism, such as Air New Zealand, SkyCity, Tourism Holdings and Auckland Airport.
Devon Funds head of retail Greg Smith said there was bound to be some interesting results.
“I think there could be some interesting subplots,” Smith said. “You’re going to have companies which did well during Covid, which perhaps aren’t seeing the same tailwinds.
“On the other side, you’ve got companies that were hurt by the pandemic, and perhaps now seeing things go a bit more in their direction.”
Among the companies to watch, Smith said it would be interesting to see how Meridian Energy was doing with negotiations to extend its contract to supply power to the smelter at Tiwai Point, which was important to the wider electricity sector.
“As well is A2 Milk – they are going through a renewal process for their registration in China. I think shareholders will be very interested to know how that’s going.”
The impact of the recent flooding in Auckland, which occurred after the 31 December balance date, would also be of interest, Smith said.
“Everyone saw the pictures of the terrible flooding (at Auckland Airport), so there will be a cost to that,” Smith said, adding some companies may also benefit from the disaster recovery.
“There will be construction and repair and remediation, so that could be relatively positive for the likes of Fletcher (Building). So it’ll be interesting to see whether they see any pickup in activity as a result of the flooding.”
The market will also be looking to see whether companies’ performances justified some of the increases in share prices over the past six months, with a 15 percent increase in overall values.
“It could mean that some of those companies, where the share price has had a good run, could be sold off, even if they produce a decent result,” Lister said.
“And it means you could see quite positive outcomes from some of those other businesses that maybe haven’t seen the same share price gains.”
However, Lister said many companies will be wary of providing any firm guidance on the outlook, given a range of uncertainties.
“We’ve got the Reserve Bank set to increase interest rates again next week and people are wondering what sort of tone we’ll see from them — how aggressive it will be,” he said.
“So I think there will definitely be a tone of caution for many companies.”
Smith said the outlook will be important for investors.
“I think a lot of the interest will focus on not just necessarily the hard numbers and disclosures, but it will be about comments around the outlook as well,” Smith said.
“We had a lot of bad news factored into the market last year and to various share prices last year.
“The markets have got off to a pretty good start so far in 2023, and investors will be looking to see whether that’s justified.”
