Corporate earnings better than expected
AUCKLAND: Corporate earnings took a mauling over the reporting season, but it hasn't all been red ink.
Many companies more than held their own while others clocked up big profit increases.
Aside from aviation and tourism sectors, which bore the brunt of anti Covid19 measures, analysts said the reporting season for those June 30 reporting stocks was better than expected.
Even so, annual results only captured three months of Covidaffected trading.
‘‘It's been clear which stocks have benefited from Covid and which stocks have been ripped in half by Covid,’’ Jarden analyst Adrian Allbon said.
As expected, Auckland International Airport and Air New Zealand were severely affected by border closures and lockdown measures.
The airport's aftertax profit plunged 63% to $193.9 million on a 53% fall in operating earnings.
Chairman Patrick Strange said the past six months had been the most challenging of Auckland Airport's 54year history.
Covid19 wiped out Air NZ's firsthalf result, and statutory losses before taxation, which include $541m of other significant items, were $628m, compared to earnings of $382m last year. The aftertax loss came to $454m.
Ironically, one of the season's bigger loss makers — Vista Group — enjoyed the strongest share price rally over August, when most results were reported.
Noncash credit charges and credit provisions took the cinema software company to a loss for the six months to June of $43.2m, yet the stock shot up by almost 45% over the month.
Clearly, the market was expecting much worse.
Also in the betterthanexpected camp was Summerset, which reported a bottomline profit of just $1m, from last year's profit of $92.6m.
Summerset's share price has also been firm, post result.
F&P Healthcare did not actually report, but it did issue a $100m earnings upgrade on the back of Coviddriven demand.
The expected closure of the Tiwai Point aluminium smelter in August loomed large over most of the power generators — the exception being the North Islandcentric Mercury.
‘‘Their earnings outlooks were opaque, as expected, because of the binary outcomes that could potentially occur,’’ said one analyst.
Analysts rated results from Skellerup, Mercury, EBOS and Port of Tauranga highly.
Mark Lister, head of private wealth research at Craigs Investment Partners, said for the most part, stocks came through better than expected — even the ones that did it tough.
‘‘It was still an ugly reporting season compared with previous years, but compared to expectations it wasn't too bad,’’ Mr Lister said.
As always, analysts were on the lookout for meaningful ‘‘outlook’’ statements as to how companies might fare in the year ahead.
For the most part, they came up emptyhanded.
‘‘Not a lot of businesses have got certainty. Some have, but most have not,’’ Mr Lister said.
Dividends, in these days of ultralow interest rates, come into sharper focus.
‘‘We have seen a lot of companies either reduce, or suspend dividends — companies you would usually see as reliable dividend payers.’’
Some dividends were scrapped altogether, others were reduced and some were lifted.
Manuka honey company Comvita and NZME — publisher of The New Zealand Herald — talked about paying dividends again after a hiatus, which Mr Lister said could be taken as a sign of confidence.
But few are under any illusions as to what lies ahead, as economic activity rapidly contracts as a result of Covid19.
Across the Tasman, GDP shrank by 7% in the June quarter — the biggest contraction since records began in 1959.
S&P Global Ratings said significant damage from Covid19 would unfold across many Australian and New Zealand companies over the next few months.
‘‘The fallout from the pandemic has yet to fully play out across the Australian and New Zealand corporate landscape,’’ S&P Global Ratings credit analyst Richard Timbs said.
‘‘We believe more pain is likely in companies' earnings amid the weakest macroeconomic environments in decades,’’ Mr Timbs said in a report.
‘‘What's more, Covid19 has driven or accelerated structural trends in a number of sectors, such as discretionary retail, that will potentially wipe out chances of a full recovery for some companies.’’
Government stimulus measures would remain a key ‘‘swing’’ factor in the recovery, S&P said.
‘‘Nonetheless, we believe that worsening credit quality and defaults in the small and medium enterprise sector are likely to accelerate as these support mechanisms are removed,’’ Mr Timbs said. ‘‘Indeed, we expect defaults to increase from a limited level so far.’’ — The New Zealand Herald