After several positive reporting seasons and increasing forecast earnings growth, Forsyth Barr’s broader forecasts for market growth had eased slightly.
The quality of earnings per share (eps) growth was poorer and earnings revision upgrades had declined relative to the last several reporting seasons, she said.
The small size and large number of property companies reporting during the period made it hard to make sweeping statements. However, overall unchanged and upgraded forecasts suggested it was still a positive reporting season.
Revenue growth was strong, albeit aided by acquisition.
"Below-the-line items boosted the final numbers, meaning the reported level of growth was of lower quality."
The poorer quality could explain the weak market response to the season, where only five companies outperformed the market post-reporting versus 12 companies under-performing, Ms Howe said.
During the reporting season, it was noticed for the first time in quite a while "earnings fade" was starting to reappear.
Financial year 2017 forecast earnings growth had fallen from 9.9% to 7.5%. Persistent costs seemed to be the prevalent reason for falls but tighter credit conditions could be a risk for earnings in the future.
"We acknowledge business confidence remains high and, therefore, positive sentiment is likely to be reflected in outlook statements. We are also mindful of tightening credit conditions requiring higher funding costs of banks and their core funding ratio requirements."
Recently, the Reserve Bank highlighted if current rates of credit and deposit growth persisted, the "big four" banks would be required to raise about $40 billion during the next three years, she said.
Due to the scale of the issuance required, offshore funding would be needed.
"We believe banks will also raise rates on deposits and continue to tighten credit. This may place pressure on domestic cyclicals and act to constrain growth."
Reviewing the property sector, Ms Howe said the November reporting season included seven property companies.
Results were broadly in line with expectations but were aided by items below the operating line. Revenue was generally lower than expected, suggesting rental growth lagged expectations.
Acquisitions and development activity was driving much of the growth being reported, with underlying growth of 2.3% versus headline growth closer to 11%, she said.
Growth was expected to moderate with acquisitions and development activity harder to justify. Interest costs were also expected to increasingly weigh on earnings further out, given the property sector had been one of the largest beneficiaries in the past few years.
Positive property revaluations might also be more difficult to achieve.Actual dividend-per-share growth finished in line with expectations but just one company exceeded Forsyth Barr’s dividend forecast, four were below and 18 were in line.
Companies reporting dividends below expectations included Fisher & Paykel Healthcare, Trustpower, Tower and Metro Performance Glass.The only company that surprised with a higher dividend was Ryman Healthcare.
Re-ratings
• Investore Properties: from neutral to outperform.
• Metro Performance Glass: from outperform to neutral
• National Property Trust: from outperform to neutral
• Tilt Renewables: from neutral to outperform
• Trustpower: from neutral to underperform
