Despite economic difficulties, major listed companies are expected to post profits

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The economy is slowing, business and consumer confidence are struggling to emerge from the basement, Covid-19 is ravaging the workforce and supply chains, and rising interest rates and inflation compresses spending.

Analysts at Forsyth Barr expect earnings from reporting stocks to rise about 8.7% over the past six months (file image).
Photo: 123RF

So why should the country’s largest publicly traded companies report a reasonable set of earnings when the season kicks off in earnest next week?

“Given the lack of admissions or poor trading updates over the past few months, this suggests there is still earnings strength among our listed companies,” the portfolio manager at Milford Asset Management said. , Sam Trethewey.

Analysts at Forsyth Barr expect reporting stock revenue to rise about 8.7% over the past six months and operating profits to rise just under 3%, although they also noted that their forecasts were skewed by a small number of large companies.

“We have a slight upward bias on our expectations for June earnings.”

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All analysts are looking at the results of companies with direct exposure to the domestic economy to see the impact of slowing activity, disruptions and rising costs.

“We will pay particular attention to comments on current demand from Spark, Fletcher Building and Freightways,” analysts Forsyth Barr said.

“Of the three, we are most cautious on Freightways as its demand profile tends to be early in the cycle, inflationary cost pressures can eat into margin expansion and earnings

growth expectations for fiscal 2023 may need to be moderated.”

They also saw risks for dairy companies, Synlait Milk and A2 Milk Company, and expected no reassurance of either outcome, while financial stocks NZX and Heartland Group could also face to “a difficult earnings season”, with moderate capital. market activity and the deterioration of the difficult economic context.

Jarden Securities senior analyst Adrian Allbon expected no surprises in Fletcher Building’s result, which the company says should be around $750 million in pre-tax profit, and with ongoing discussions on a solid forward order book.

Gentailers – Contact, Mercury, Meridian and Genesis – are seen as solid defensive stocks and should deliver no surprises and solid dividends, with new momentum emerging for their outlook.

“We expect the focus to be on the Tiwai negotiations, which are again ongoing, as well as current and new construction costs, escalation and delays,” Allbon said.

Travel

For Milford’s Trethewey, the results of Air New Zealand and Auckland International Airport mattered not only for net numbers, but also for what their outlook indicated for the economically important tourism sector.

Air New Zealand has previously reported an underlying loss of as much as $750 million, but recently also cut capacity as summer approaches to reduce delays.

Other tourism-related stocks, such as Sky City Entertainment and Tourism Holdings, are also attracting interest.

Allbon said: “SkyCity… had a strong return to activity in the fourth quarter. In 2023, we expect profits to return to pre-Covid levels, with a cautionary note about properties remaining open and guidance for reflect that”.

Forsyth Barr said demand for “revenge” travel should improve Tourism Holdings’ fortunes.

Outlook

Trethewey said companies failing to meet earnings expectations could expect to be punished in the stock market, and investors would similarly scrutinize company statements about their outlook for the year ahead.

“The interesting thing will be whether CEOs are signaling a tougher year ahead and whether they are acknowledging leading (economic) indicators and incorporating them into the outlook.”

He didn’t expect big write-downs of assets or talk of raising capital, as much of that had happened when the pandemic first hit, but was wary of any exaggerated outlook. who didn’t seem to stand up.

“The market will be very skeptical of any material earnings growth or overconfidence shown by companies … if they can articulate a solid story as to why their earnings are going to hold up, then we will see a positive stock market reaction. .”

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