February will mark an important time for analysts and investors, with about two thirds of our listed companies reporting six-monthly results over the coming weeks.
This will have a major influence on where the market goes from here, while outlook statements will tell us a lot about the changing dynamics in our economy.
Despite a subdued start to the year (especially compared to others around the world), the local sharemarket is trading at elevated levels, leaving the bar fairly high for most companies.
We’re generally expected to have another decent earnings season. After all, the economy has been pretty resilient with unemployment falling and most of our trading partners experiencing robust growth.
Of the top 50 companies, seven out of ten are expected to see profits rise in the 2018 financial year. About four in ten are forecast to post double-digit earnings growth over the previous period.
There are several themes to watch during the reporting season, if not explicitly in the cash flow statements, then in the vibe we get from management.
The current rhetoric is that our economy is heading into a slower patch, as migration comes off the boil and the housing market shifts into low gear. Recent business confidence surveys support this view, although perception could be dominating reality in these, at least partially.
Companies like Freightways and Trade Me have big domestic operations, so their results might give us some more evidence of this.
In contrast, almost everyone is ramping up their estimates for global growth. The International Monetary Fund just raised their economic forecasts quite markedly, and it’s hard to disagree with this view looking at most indicators.
These days, we’ve got plenty of companies doing substantial business offshore, and many will be benefitting from this.
Against the US dollar, our currency will have been a handbrake for them, although companies exporting to Australia, the UK and Europe will have experienced a minor tailwind. Scales, Comvita and Ebos are a few worth watching in this regard.
Surprisingly, the impact of rising oil prices will probably be minimal. Prices were only marginally up (on average) during the last six months of 2017. However, they’ve kept rising this year so one would expect the likes of Air New Zealand to comment on looming cost pressures.
One company that will be in focus is a2 Milk. The star performer from last year has been strong in 2018, and the market will be expecting big things once again.
This doesn’t leave the infant formula producer much room for disappointment, although looking at their track record you’d be brave to bet against them.
At the other end of the spectrum, Fletcher Building will also get a lot of attention. It was this time last year things started to go horribly wrong for our biggest construction company, and the share price is still almost 30 per cent below those levels.
However, there’s a new CEO on board that is strongly incentivised to get things back on track, and there’s no way Sir Ralph Norris will want a repeat of the 2017 annual meeting.
We’ve had a few surprises already. Tourism Holdings beefed up their profit guidance late last year on the back of tax cuts in the US, while Summerset also upgraded their earnings forecasts.
In recent days Mercury and Kathmandu have delivered the market some good news, while Z Energy is the only major company to downgrade guidance, and that was relatively minor in the scheme of things.
As for the rest, we’ll have to wait and see.
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Mark Lister is Head of Private Wealth Research at Craigs Investment Partners, his Adviser Disclosure Statement is available on request and free of charge under his profile on craigsip.com. For personalised investment advice please contact a Craigs Investment Partners Investment Adviser or phone 0800 272 442. This column is general in nature and should not be regarded as specific investment advice. Craigs Investment Partners do not accept liability for the results of any actions taken or not taken upon the basis of this information. While every effort has been made to ensure accuracy, no liability is accepted for errors or omissions herein.
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