Business & Investing: There’s life again in the NZ sharemarket, Plus residential building consents continue to hit record levels

Markets Review

The New Zealand sharemarket recorded its best week since January, gaining 2.6 percent last week to close at 12,496, while in Australia the ASX200 gained 1.5 percent to close at 7282.

Investors returned to the local market after a 4.6 percent fall in the index in May had many retreating to the sidelines.

Shares in a2 Milk attempted a rebound, closing above $6 for the first time since May 21 and having its first positive weekly gain since April, while Synlait Milk shares surged more than 10 percent last week following an increase in its payout forecast on the back of rising demand from China.

Fletcher Building shares closed at a four-year high of $7.85 ahead of the commencement of its share buyback program which begins this week, and also a strong lift in new residential dwelling consents in April buoyed investors. The shares have now more than doubled in value since October last year.

A lift in Auckland International Airport shares also helped to push the market higher, closing at $7.61 on Friday after falling as low as $7 at the end of May.

In the US, the benchmark S&P500 ended the week up 0.6 percent at 4230, just a couple of points shy of its all time high. A slightly weaker than expected monthly jobs report on Friday indicated the US labour market remains vulnerable and subject to monthly gyrations. However, investors took comfort that current labour market data is likely to mean the US Federal Reserve’s current monetary policy settings will remain unchanged in the medium term.

Gold retreated slightly after a strong run in recent weeks easing 0.6 percent to US$1891 an ounce.

Brent Crude Oil futures pushed through US$70 to end the week at US$71.60 a barrel, its highest weekly close since May 2019.

Bitcoin traded in a narrow range last week, gaining 0.4 percent to finish at US$35,800 as it attempts to recover from a sharp sell-off in May.

The closely watched US 10-year treasury yield weakened slightly to 1.55 percent, down 1.6 percent for the week, while the NZ dollar also weakened 0.5 percent to 72.12 US cents.

Week in Review

Residential building consents reached another record high in April. A total of 3,994 consents were approved during the month, with 42,848 consents approved for the year to April 2021. Compared with April 2019, new dwelling consents were 53 percent higher. Residential dwelling consents are continuing to gain momentum, with seasonally adjusted consents up 4.7 percent from March which is the highest individual month on record. Consents in Auckland remain the main driver of growth, with 729 more dwelling approvals in the region than a year ago.

Synlait Milk lifted its milk price for the 2020-21 season and announced a higher than expected opening forecast. The 2020-21 forecast base milk price rose to $7.55 per kilogram of milk solids, up from $7.20 kgMS, while its opening forecast for the 2021-2022 season is $8 kgMS. Chief executive John Penno said commodity prices had continued to outperform the company’s expectations, underpinned by strong Chinese demand and supported by a relatively stable exchange rate.

a2 Milk acknowledged being aware of media reports about a potential class-action suit against the company but said it was not aware of any legal proceeding having been filed. According to the Australian Financial Review the company is being investigated by Slater & Gordon Lawyers, who allege a2 may have engaged in misleading or deceptive conduct in breach of Australia’s Corporations Act. It also said a2 may have possibly breached continuous disclosure rules, pointing to four downgrades in the past eight months. In response, a2 said it had complied with all applicable disclosure obligations and denied any claim to the contrary.

IkeGPS reported a strong lift in new contracts after the pandemic disrupted customers during the first and third quarters of FY21. During the 12 months to March, the communications and electrical pole management company said it had closed $8.8 million of new contracts, with $5.4m closed in the final quarter alone. It said the North America market had begun to bounce back and network projects were accelerated. It said the majority of the new revenue would be recognised in the 2022 financial year.

PaySauce acquired Palmerston North-based rival SmoothPay, issuing almost $400,000 of new shares in consideration. The payroll software provider said the acquisition would add 1,500 new customers, taking its total customer base to more than 5,000 subscribers, including from Australia and several Pacific Island nations. SmoothPay founder Matthew Gardner will join the company as a senior payroll developer, bringing expertise on compliance with labour legislation in NZ and other jurisdictions.

Barfoot & Thompson said Auckland real estate sales numbers in May continued at “breakneck pace” with buyers apparently unfazed by recent government restrictions aimed at damping down rampant house prices. Managing director Peter Thompson said the realtor’s sales numbers were at their highest level for the month in four years. The median price across its 1,197 confirmed sales was $1.07 million, 2.2 percent ahead of the prior month and 17.5 percent higher than May last year. Thompson said the market appeared to have worked through the implications of recent changes, which included the removal of interest deductibility for landlords and increased minimum loan-to-value ratios to 40 percent for investors.

Google New Zealand reported revenue of $43.8 million for the year ended Dec 2020, a 21 percent increase on its prior year result. Advertising reseller revenue, the subsidiary’s main revenue stream, was $35.72m for the year. According to its financials the revenue is primarily derived from advertising revenues generated on its various websites including Google Search, Gmail, Google Maps, Google Play, and YouTube.

Michael Hill International announced the appointment of former Air NZ and Icebreaker CEO Rob Fyfe as the company’s new chair. Fyfe will replace outgoing chair Emma Hill, the daughter of the company’s founder. Hill will remain on the board as a non-executive director, while current CEO Daniel Bracken will also join the board as managing director later this month.

New car sales continue to boom with April and May sales recording all-time records. New passenger car registrations grew by 85 percent last month to just over 10,000 units, from 4,611 units in May last year. Demand for cars represented “substitute spending” by New Zealanders unable to travel and as retailers filled back orders that in some cases extended to six months according to the Motor Industry Association. A total of 69,564 new vehicles have been sold so far this year up almost two-thirds, or 27,379 more than the comparable 2020 period which was impacted by Covid lockdown restrictions

NZ Post released its annual e-commerce report, The Full Download, showing New Zealanders increased online shopping spending by 25 percent last year as the Covid-19 pandemic triggered a shift in consumer habits. Online spending rose to more than $5.8 billion in 2020, up from $4.6b in 2019. According to the report, Kiwis are buying more groceries, clothing and appliances online, with the number of web transactions up 17 percent to 53 million. More than 306,000 people shopped online for the first time last year, according to the report.

US payrolls grew by 559,000 workers in May, while the unemployment rate fell to 5.8 percent, the first time it has dropped below 6 percent since the pandemic began in January last year. The average monthly gain over March, April and May was about 540,000 positions. If payrolls maintain the current rate of increase it will be well into 2022 before the labour market returns to pre-pandemic levels. The report noted the US currently has more than eight million job openings and 9.3 million people unemployed, though demand for workers is outpacing the supply of those ready to snap up a position. Nearly half of the small-business owners surveyed last month said they were struggling to fill openings.

Coming up this week…

Tues: Scales Corporation AGM in Christchurch

Wed Business employment & financial data (March quarter)

Thurs: Electronic card transactions (May); Fletcher Building share buyback commences

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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