A handful of companies across Australia and New Zealand
have reported in the last few days but over the next three
weeks, corporate reporting increases substantially. Business
editor Dene Mackenzie talks to Craigs Investment Partners
broker Chris Timms about his thoughts on the reporting season
and a selection of companies which could either impress or
After a flurry of initial public offering (IPO) activity
distracting the investment community over recent months, the
reporting season has brought back a focus to what really
drives market performance - earnings.
Craigs Investment Partners broker Chris Timms said the
reporting season was an opportunity for some of the recently
listed companies to present their inaugural results to the
market as a listed entity.
It would also allow some of the more established companies to
regain some of the limelight.
''We expect strong results - relative to prospectus forecasts
- from companies involved in the government sell-downs, such
as Meridian and Air New Zealand.''
Pleasingly, few earnings downgrades had come in just before
the reporting season, suggesting most would be generally
solid and not far from market expectations, he said.
Of the NZX-50 companies scheduled to report full-year results
this month, the average estimate for growth in reported
profit was a ''solid'' 5.8%.
For the same group, growth in the 2015 financial year was
expected to accelerate to an average of 10.1%.
The market might focus more on the outlook as there appeared
to be more optimism around 2015 estimates, Mr Timms said.
In Australia, median earnings growth for the ASX-50 was
expected to slow from 9.4% in 2014 to 7.4% in 2015.
The currency was expected to have again been a drag on
earnings for those New Zealand companies with international
operations, particularly in Australia.
In the year to June, the New Zealand dollar averaged A91c
against the Australian currency, 13.1% higher than the A83c
in the second half of the previous year, he said.
Against the US dollar, the kiwi was only 1.3% higher in the
most recent period.
In addition, there had been a much weaker economic backdrop
in Australia than in New Zealand.
That could negatively affect companies such as Fletcher
Building, Ebos, Hellaby Holdings and Nuplex.
The NZX-50 had been flat during the past six months,
returning only 1.2% and trading within a relatively tight
range, Mr Timms said.
''We believe this is due to rising interest rates, a spate of
IPOs, full valuations and the uncertainty surrounding the
''The reporting season should point to strong financial
positions for many of our companies and attractive growth
options, especially as interest rates stabilise and the
Craigs expected the market to remain lacklustre until after
the election on September 20, he said.
A small boost to sentiment was expected if the election
played out as the broking firm expected.
In that case, it was sensible strategy to accumulate
good-quality stocks over the coming reporting season, if
their growth prospects were endorsed.
Fisher & Paykel Healthcare Current price $4.78 The
company reported its result in May but was holding its annual
meeting this month.
The company had been performing well, had upgraded its
guidance several times over the past year and had growth
options that should see it continue to outperform in the
coming 12 months.
As an exporter, any fall in the New Zealand dollar would
benefit the company, making it an excellent hedge against any
economic shock from the domestic economy.
A2 Milk Current price 66c If a2 Milk raised capital to fund
its US expansion, Craigs believed it would be viewed as a
sensible strategy which would not see a negative reaction.
The Australian operations could be surprisingly strong, while
recent confirmation of regulatory approvals in China
supported the outlook.
The company was good value under 75c a share.
Meridian Energy Current price $1.24 Meridian Energy was
expected to report a strong result well ahead of prospectus
The company had excellent assets, provided an attractive
yield and with Craigs' ''confident'' view of the election
outcome, Meridian was regarded as the top stock pick for the
remainder of the year.
Air New Zealand Current price $1.94 While Craigs acknowledged
the inherent risk in investing in airlines, particularly
following the strong run Air NZ had over the past two years,
the company remained in a strong position to grow earnings in
the coming years.
Earnings growth of more than 30% was expected in 2014
followed by double-digit growth in 2015.
For higher-risk investors looking for short-term
opportunities, Air NZ looked attractive under $2 a share, Mr
AMP Current price $A5.30 Although AMP was already trading
above Craigs' target price, there was potential for a good
result to cause momentum to push the price higher.
AMP was expected to deliver 15% profit growth in the first
half and divisional improvements were expected to be
Seek Current price $A16.17 Domestic volumes were growing as
Seek gained market share and price benefits continued to
With the domestic business likely to face an easy comparative
period at this result, there was potential for a strong
headline result and strong guidance going into the 2015
Commonwealth Bank of Australia Current price $A80.41 It was
difficult to find value in the Australian banks at current
price levels, particularly CBA which was traditionally the
However, there was potential for a surprisingly strong
result, should bad debts come in below market expectations.
BHP Billiton Current price $A38.02 As was the case with the
recent result from Rio Tinto, BHP could well exceed market
expectations on the basis of lower costs, improved cash flow
generation and reduced debt levels.
Trade Me Current price $3.45 Trade Me was a quality company
and was starting to look interesting from a long-term value
It might take some time to turn around the underperforming
parts of the business and there was a risk the upcoming
result would be of a low quality, meaning the company could
remain out of favour.
Sky City Current price $3.60 Earnings momentum had been poor
for the company of late, with operating earnings down in the
first half of the financial year.
The Australian economy remained challenging and only limited
benefits from the domestic recovery seemed to be flowing
through to Sky City.
The high New Zealand-Australian currency cross rate provided
Spark (Telecom ) Current price $2.81 Spark had performed well
of late and Craigs had recently moved to an underweight
rating based on the share price strength.
Revenue growth was expected to slow, competition remained
high and the result was not expected to live up to the
expectations built into the share price at current levels.
Ebos Current price $9.25 Ebos was exposed to an excellent
long-term theme as a healthcare provider.
The share price had also been weak, which had seen the
company fall to more reasonable valuation multiples.
The first-half result was of mixed quality and the impact of
the weaker Australian dollar was likely to have grown over
Ebos remained a solid long-term story.
Adelaide Brighton Current price $A3.46 Adelaide Brighton had
struggled lately and the new chief executive had guided
expectations towards a flat first-half result.
''We have removed the company from our core portfolio and
moved to an underweight rating.
"We continue to see operational risks and we recommend
investors exit holdings until the outlook becomes clearer,''
Mr Timms said.
Coca-Cola Amatil Current price $A9.31 Coca-Cola was another
company that had lost its way over recent years.
While the core business remained robust, and the company
controlled excellent brands, medium-term profit barriers
The new chief executive was looking to make significant
changes to the business.
Amcor Current price $A10.95 Amcor was one of Craigs' core
holdings in Australia and the broker retained a positive
long-term view on the company.
There was potential for the full-year result to disappoint on
the back of soft beverage volumes in North America as well as
lower European tobacco packing volumes.
The strong Australian dollar could weigh on the result.
Computer Share Current price $A12.51 Like Amcor, Craigs also
had a positive view on Computer Share over the medium term.
The company was leveraged to rising interest rates in the US,
as well as ongoing corporate activity.
''Computer Share could issue a more conservative 2015
earnings outlook than the market is expecting,'' Mr Timms