Business & Investing: The effect of Auckland’s fourth lockdown will today be seen on the already-pressured NZX, Plus, global markets wobble in February

Volatility is already shaping up as the overriding theme for 2021 as investors prepare for yet another hit today following Saturday’s decision to return Auckland to a Level 3 lockdown for a full week while the rest of the country reverts back to Level 2.

Despite a reasonably positive reporting season with some good turnaround results, last month ended up being a tough one for the local market, seeing it briefly dip into correction territory on Thursday and only barely hold above it at the close on Friday.

The NZX50 ended the week down 2.6 percent, though had the market not staged a late recovery on Friday climbing more than 200 points from its intraday low, things would have ended a lot worse.

As it was, the NZX50 lost ground on 14 of the 19 trading days in February, ending the month down 6.6 percent and is now 9.8 percent off its high of 13,558 on January 8, leaving it only fractionally above the 10 percent level that would place it in correction mode. That may well happen again today.

While the year has barely started, investors have had plenty to contend with in just the first eight weeks. A strong run-up in energy stocks that was followed almost as quickly by a brutal sell-off kicked off the year. That was followed by a sharp sell-off in late January on Wall Street as sentiment was shaken after the growing influence of activist retail investors using social media drove up stocks such as GameStop only to see them fall just as quickly.

Locally, rising bond yields in February and a resurgent kiwi dollar have been responsible for a nasty sell-off in local stocks, not helped by further disappointment from market leader a2 Milk last week which revised down its earnings outlook for a third time, adding to the negative sentiment. And now there’s the implications of another lockdown and the potential for it to be extended beyond seven days if further community transmission of Covid-19 is discovered, inflicting further pain on companies already under pressure, particularly in the retail sector.

Global markets begin to weaken in February while oil price surges

For now, the NZX50 is looking somewhat out of sync with other global markets, though that may well change in coming days as signs of weakness began to emerge last week.

Across the Tasman, Australia’s ASX200 fell 1.8 percent for the week, while finishing up 0.7 percent for the month as resource stocks such as BHP hit record highs. In the US, it was much the same with the S&P500 down 2.5 percent for the week but up 2.6 percent for the month. Bond market jitters late last week are also beginning to unnerve investors there.

Oil was the standout performer in February with Brent Crude Futures finishing up 2.8 percent for the week at US$64.40 and up a whopping 17.1 percent for the month adding to growing fears about inflation risks down the line.

Gold continues to lose ground falling a further 2.7 percent last week to US$1733 an ounce. There’s plenty of debate as to why the precious metal is not acting as a traditional safe haven, given the current volatility, with some analysts suggesting bitcoin is increasingly being favoured over gold. However, the high-profile cryptocurrency was decidedly out of favour with investors last week falling 25 percent for the week to around $43,200, marking its worst week in almost a year. Despite the fall, it still ended up 31 percent for the month and more than 45 percent year to date.

The kiwi dollar fell 0.9 percent for the week to 72.33 US cents after touching a three and a half year high of 74.65 last week.

Both exports and imports ease in January

Exports fell 10 percent in January to $4.2 billion compared with the same month last year, marking the biggest year-on-year fall in nearly five years according to Statistics New Zealand.

The decline was led by an 11 percent drop in milk powder, butter and cheese exports. January marked the fifth consecutive month this season where monthly dairy exports were lower than the corresponding month a year earlier.

Meat exports also fell sharply down $141 million, or 18 percent in January.

Sheep meat exports fell $69m or 17 percent, while beef exports fell by a similar amount.

Imports were also weaker, falling 5 percent to $4.8b, bolstered by a lift in electrical machinery and equipment, vehicle parts and accessories and precious metals, jewellery and coins.

The annual trade balance was a surplus of $2.7b.

Port of Tauranga lifts half year result but new berth extension remains stalled

“Deeply frustrating” is how outgoing Port of Tauranga CEO Mark Cairns has described continued delays to its proposed $68 million berth extension at its container terminal.

Despite the project being considered ‘shovel ready’ and seeking consent under the government’s Covid fast-track programme the extension remains stalled, adding to the port’s already growing list of logistical challenges.

Cairns also took a swipe at competitor Ports of Auckland saying “”We have had good cooperation from importers and exporters in improving productivity, but the threat of congestion remains and won’t dissipate until Auckland sorts out its operational problems.”

Despite a challenging year that saw the port deal with volatile cargo volumes and congestion issues it managed to post a 2.3 percent improvement in net profit after tax of $49.4m for the six months to December 2020, up from $48.3m for the comparable 2019 period.

Trade volumes fell 1.3 percent to 13.1m tonnes, with container volumes down 4.6 percent to 612,988 twenty-foot equivalent units, however revenue rose 3 percent to $159.5m bolstered by contributions from subsidiary companies including Timaru’s PrimePort.

Congestion at Ports of Auckland had seen 11 container vessels diverted to Tauranga from Auckland during the period, resulting in the average cargo exchange per container vessel at 21 percent higher during the busy December month.

Cairns said the outlook for the second half of the financial year remained uncertain.

“Covid-19 precautions continue to have a big impact on our costs. There is still much uncertainty as to what the second six months of the year will bring, but we are confident we are in a strong position to tackle any challenges.”

Port of Tauranga expects full year earnings to be between $94 million and $100 million.

Its shares closed up 3.4 percent at $7.62.

Tourism Holdings slims down its existing campervan fleet as it invests in new range of RVs

The revenue from the sales of its campervan fleet has provided a much-needed lifeline for Tourism Holdings after the company reported a net loss of $1.8 million for the half year to the end of December, compared to a $13.1m profit in the comparable period.

Tourism Holdings CEO, Grant Webster, said “THL has executed on its accelerated vehicle sales plan to deliver total revenue in the first half of FY21 that is approximately equal to the prior period, despite the substantial reduction in rental revenue.

Webster said net debt would increase in the remainder of the financial year as the company re-invests in a new fleet of vehicles.

“We have confidence that we can sell vehicles to generate a profit, based on the sales performance over the last 12 months. We are proactively adapting our business and product mix to match the current domestic trading environment, whilst also undertaking several business improvement projects to see that we come out as the leader in the market as international tourism returns.”

Tourism Holdings has taken control of its motorhome supply chain, buying out its partner for $9 million to have an end-to-end RV business across Australia and New Zealand. The RV rental operator was already reinventing itself before the Covid-19 pandemic struck as it dealt with a downturn in the US. However, when international travel ground to a halt it aggressively sold down stock to raise revenue as well as offering deeply discounted rental details to stimulate domestic demand.

The company said its net debt had fallen by almost 80 percent to $22M as at December 2020, reflecting a reduction of approximately $106M across H1 FY21 and $175M since March last year.

THL said that while it remains difficult to provide forward guidance it reiterated its December forecast saying that, based on current expectations, the loss for FY21 is expected to be greater than the average of the results projected by market analysts.

THL shares closed up 2.7 percent at $2.25.

Steel & Tube beats its own guidance

Steel & Tube Holdings delivered a better than expected half year result, exceeding its own guidance, and remained cautiously optimistic in its outlook saying that “growing market demand in residential construction had helped it to offset a softer non-residential construction market.”

The company reported a $4.3 million net profit for the six months ended December compared with a $37m net loss in the same six months a year earlier.

Pre-tax, interest and depreciation earnings totalled $8.9m compared with its December forecast of $6.5m-to-$7.5m. A one-off gain of $1.3 million from reversing a previous impairment and from the sale of its remaining property boosted the final result.

The company will pay a 1.2 cents per share dividend without tax credits.

It said the improvement reflected the benefits of its strategic initiatives and structural cost cutting.

Steel & Tube now has no debt and said it had $23.9m cash in the bank to support its capital investment and growth strategy.

Its shares closed down 5.7 percent at 99c, though they have almost doubled in value in the past six months.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

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