Companies are being hammered by shareholders, as one of the most volatile reporting seasons in years gets under way, despite businesses booking positive results and strong forward guidance.
The recent selling of shares after half-year results - wiping hundreds of millions off companies' market capitalisation in New Zealand and Australia - appears to have little rhyme or reason.
The rot set in from the New Year Stock Exchange openings around the world as global investors reacted to every negative United States announcement, becoming highly risk averse to a looming US recession promoted by a global credit squeeze sparked by the earlier subprime mortgage crisis.
The most recent negative shareholder reaction was against specialist electronics retailer JB Hi-Fi in Australia yesterday, whose share price fell 9% to $A10.97 ($NZ12.60) , despite reporting a 58% increase in after-tax profit for the company, which has a market capitalisation of $A1.2 billion.
The New Zealand first-half reporting season covers the results of more than 30 companies through to late March.
ABN Amro Craigs broker Peter McIntyre said there were a few reasons contributing to the shareholder sell-down, but overall there was ‘‘no rhyme or reason'' to so many companies being punished.
‘‘This is one of the most volatile reporting periods we've seen. Shares have taken a hammering if they look like not coming in within guidance,'' Mr McIntyre said.
The AMP group delivered a full-year result yesterday, booking an 8% increase in after-tax profit at $A985 million, within the mid-guidance range, but its shares traded down 5.26% in New Zealand and initially slid in Australia but rebounded without loss.
The shares of Fletcher Building, with a market capitalisation around $5 billion, were down 30c to a 16-month low of $8.85 on the day it reported earlier this week, having plunged more than 20% this year on concern about the global housing market, US recession and rising interest rates.
Australian infrastructure services company United Group, with a market capitalisation of $A2 billion, reported earnings before interest and tax (ebit) up 40%, revenue up 20% to $A1.6 billion, a 52% rise in its contracted order book and 48% rise in potential forward orders.
In response, its shareholders sold down its share 18% to $A12.25. Similarly, the Commonwealth Bank of Australia took a 6.5% share plunge to $A44.03 per share, after having reported a record first-half after-tax profit of A$2.37 billion and reiterating it had little exposure to the ailing US subprime sector.
Mr McIntyre said stock ‘‘short selling'', a common practice in Australia but little used here, was evident with global hedge funds and large institutions selling down stock now and buying back into falling stock later, in the process taking a profit.
He said there was some anecdotal evidence of small ‘‘mom and pop'' investors, concerned at rising interest rates in New Zealand and Australia, exiting stocks in order to pay off unrelated debt. However, this would only account for a very small percentage of the stock sell-downs.
The New Zealand market was generally overvalued in mid-2007, but the latest ‘‘correction'' to the overvalued sentiment was an overreaction, he said.
Many of the punished companies had good liquidity and some investors were ‘‘grabbing the low-hanging fruit'' while they could, which did not have the potentially negative impact it could on companies that were debt-laden and cash-poor.
‘‘Investors are closely watching what's happening in the US and also hanging on every word of the chief executives on their [respective] company's forward outlook,'' Mr McIntyre said.
Transtasman brewer Lion Nathan Ltd yesterday downgraded its guidance for net profit after tax, before significant items, for the 2008 financial year to $A265 million to $A275 million, AAP reported yesterday.
In November last year, Lion Nathan forecast a net operating profit in a range of $A270 million to $A280 million for fiscal 2008 and then a ‘‘significant step-up'' in earnings from fiscal 2009.
That guidance excluded the impact on earnings of the group's $A325 million acquisition in November of Tasmanian beer-maker J. Boag and Son.
Lion Nathan said yesterday the Boag acquisition would have a negative impact of $A13 million on net profit for 2008.
Shares in mining giant Rio Tinto Ltd yesterday opened almost 2% higher after the takeover target delivered a record underlying profit of $US7.4 billion ($NZ9.6 billion) overnight. The result was above analysts' forecasts and puts added pressure on a $US147 billion takeover bid by larger rival BHP Billiton Ltd.
