Pressure high for reporting season
Companies’ ability to meet promises will be keenly watched given market’s hot run of late, says fund manager
The June financial reporting season has kicked off and analysts will be closely watching whether companies live up to their promises given how hot the share market has been running of late.
Shane Solly, fund manager at Harbour Asset Management, said the market was being driven by lower interest rates with investors pouring into bond-like utility, infrastructure and real estate stocks in a bid to boost income yields.
But he said it was important to remember why rates were down.
“The reason interest rates are falling is because central banks, including the RBNZ, are cutting and potentially continuing to cut official rates as insurance against the impacts of slowing global trade on economic growth.”
Solly said not all stocks would do well in that environment with cyclical businesses most exposed.
“We are seeing this in recent US company results with companies like rail operator CSX and home builder
Pulte missing expectations and seeing their stock prices fall.”
So far there haven’t been any preseason confessions of lower than promised profits but Solly said that was largely down to the type of companies reporting in this round.
“This result season is dominated by the gentailers (Mercury, Meridian, Contact Energy, Genesis), Auckland Airport, retirement/aged care (Summerset, Metlifecare, Oceania) and real estate (Precinct, Property for Industry and Vital Healthcare).”
He said given the mix of companies there was limited ability to gain insights into the health of New Zealand Inc although the retirement village stocks could give some signs of the impact of the slower Auckland housing market.
“Nonetheless outlook statements will be key to influencing the direction of the market — the market will be looking for a no surprises result period with steady as she goes type outlook statements.” Rising stars Mainfreight and a2 Milk have had very strong runs this week with both stocks reaching record highs. Mainfreight shares have risen nearly $2 a share in a week from a
The market will be looking for a no surprises result period with steady as she goes type outlook statements. Shane Solly, Harbour Asset Management
closing price of $40.18 last Thursday (July 18) to Wednesday’s market close of $42.14.
That was despite no news coming out of the company.
Market sources said it wasn’t fundamentals driving the stock but pointed to the spike coinciding with an issue of warrants by listed investment company Kingfish which is managed by Fisher Funds.
Earlier this month Kingfish warrant holders had the option to convert their warrants into ordinary shares. Given the warrants had a price of $1.25 a piece and Kingfish shares were trading at $1.45 most holders took up the option.
That gave Kingfish an injection of capital of around $50 million which it promptly invested into the companies already held in the portfolio.
Its largest holdings include a2 Milk, Fisher and Paykel Healthcare and Mainfreight.
A2 shares hit a new high of $17.45 on Tuesday while F&P shares spiked up to $16.40 — it’s highest point since May.
One analyst said while a little bit of a2’s rise was down to the warrant conversion it was also linked to some good data out of Lyttelton Port — the main port in the South Island which is owned by Christchurch City Council.
The analyst said it was typically a lower point in the year for dairy exports but the numbers were well up which implies the numbers would be good for Synlait and in turn a2.
But a2 remains a divisive stock with some analysts very optimistic about its fortunes and others, particularly Australian fund managers, choosing to short the stock.
Devon doubles profit
Fund manager Devon has more than doubled its profits in the last year after slashing its admin expenses.
Companies office filings show it made a net profit of $3.33 million in the year to March 31, up from $1.55m in the 15 months to March 31, 2018.
While the different timeframes don’t allow for easy direct comparison its performance fees were up substantially from the prior period rising from just over $322,000 to $1.11m while admin costs fell from $10.5m to $6.3m.
The fall in admin costs appears to be largely related to lower management expenses and expenses paid on behalf of the funds its manages.
Salary and wages paid out doubled between the timeframes.
The company manages six investment funds.