Sharemarket tipped to be in ‘sweet spot’ for 2 years

Most companies have met or exceeded expectations, Catherine Harris reports Analysts say the sharemarket could be in a ‘‘sweet spot’’ for the next two years as the reporting season winds up on a moderately strong note.

Most listed companies reporting interim results in February met or exceeded market expectations, heightened by positive economy forecasts.

Nick Dravitzki, of Devon Funds Management, said there had not been ‘‘any absolute shockers, but some of the bigger companies have had modestly disappointing [results] compared to reasonably rosy expectations’’.

‘‘Because we’re starting to see some momentum in the underlying economy, there are expectations that earnings will be growing reasonably quickly.’’

Andrew Bascand, of Harbour Asset Management, said generally earnings had been slightly better than expected.

Firms with Australian operations faced tough conditions and currency impacts but there was a general theme of improving margins.

‘‘New Zealand companies still have plenty of margin upside given the strong growth outlook,’’ he said. Bascand estimated profits for the market as a whole were about 1.5 per cent lower than expected, due to disappointing performances from a handful of big players. These included Fletcher Building, Telecom, Contact, Trade Me, Sky City and Nuplex, offset by strong performances from Sky TV, Meridian and Auckland Airport.

Dravitzki said Sky TV’s results had been ‘‘surprisingly good’’ as more subscribers migrated to its higher value MySky service.

Sky City had already flagged a softer result due to currency headwinds in Australia.

‘‘But even beyond that it was probably a bit weak’’ as it struggled with flat domestic growth.

Trade Me’s profit was also softer than expected, due to flat revenue growth from their general items auctions and the increased cost of adding more services.

Investors had expected a poor performance from Trade Me ‘‘and they got it,’’ but they still appeared to like its story, Dravitzki said.

Fletcher Building and Telecom were slightly underwhelming ‘‘but in both cases, full year expectations have remained pretty consistent’’.

Analysts also noted Air New Zealand’s record interim result, which posted a 40 per cent jump in net profit.

Paul Harrison, of Salt Funds Management, said Air NZ and Freightways were two examples of several companies which had seen things improve in the second quarter.

‘‘There was enough in what’s been seen in the season to keep investors in a positive state of mind.’’

Mark Lister, head of private wealth research at Craigs Investment Partners, said the season had been a comforting one, with ‘‘many more positives than negatives’’. There had been pockets of strong results like Air NZ’s and Meridian’s, and others were ‘‘simply in line with expectations’’ like Mighty River Power, Auckland Airport and the Port of Tauranga.

Nuplex, Trade Me and Ebos were below his expectations.

‘‘But generally I think it’s been very good and highlighted the fact that I think corporate New Zealand is in very good shape.’’

Lister said Kiwi firms were heading for a ‘‘period of prosperity’’ for a couple of years. ‘‘Partly because Christchurch is adding some momentum to the construction sector and that will be more than a six-month story . . . you’ve also got the export sector looking in very good shape and that’s a slightly longer term theme as well.’’

Harrison said cost-cutting had been a feature this season and companies with fixed costs could see earnings outpace their revenue in the months to come.

Missing from the slew of results were three top 10 stocks – Xero, Ryman and Fisher & Paykel Healthcare – whose balance dates were different.

However, Dravitzki said Fisher & Paykel had a profit upgrade recently, one of several.

‘‘It’s been one of the top performers in the market.’’

People would also have an eye on NZX top 10 newcomer Xero, which was expected to make a loss as it invested in its rapidly growing business.

‘‘So what people are really focussing on there is the number of customers acquired.’’

So far Xero appeared to be skirting just under its customer target, Dravitzki said.