Business & Investing: Annual meetings reveal cautious outlook as NZX could record its first negative year in a decade
A late buying surge on Friday narrowly avoided the NZ sharemarket ending at its low point for the month. As it was, the NZX50 ended the week barely changed after trading in a narrow range for most of the week. For the month, the index finished down 1.3 percent in October.
Since August, the local market has struggled to find direction and has remained largely range bound. With less than eight weeks of trading left for the year, the NZX50 is currently down 2 percent year-to-date and increasingly looks like it might record its first negative year since 2011 when it fell 1 percent. This compares to the Australian and the US markets which are up 10.4 percent and 25 percent respectively year-to-date.
Around 10 percent of listed companies held their AGMs last week with CEOs generally remaining cautious in their outlook and increasingly citing supply chain issues, vaccine mandates and planning challenges associated with the current Delta outbreak, amongst their main concerns.
Air NZ said the prospect of domestic passengers being required to be fully vaccinated was under active consideration while SkyCity Entertainment said the company would be requiring all customers to produce proof of their vaccination status before being allowed to enter its casinos and restaurants.
Monthly employment data for September showed sustained growth, with a 0.3% monthly increase (seasonally adjusted), adding nearly 5,700 jobs, despite Auckland remaining in lockdown for the month. While growth was slower than in recent months, it was the eighth consecutive month of uninterrupted growth. Earnings growth also remains strong with a 2.3 percent increase in the monthly earnings per filled job, leaving year-end earnings per job growth at 5.8 percent per annum.
On Wall Street, the S&P500 index posted its best monthly performance of the year closing out October up almost 7 percent, and recouping all its losses in September when the index fell 4.8 percent.
Electric vehicle manufacturer Tesla was the star performer of the week exceeding a one trillion US dollar market cap and sending its shares soaring above US$1000 for the first time. The price surge came after Hertz announced it had placed an order for 100,000 vehicles, propelling founder Elon Musk to the very top of the world’s rich list with a net worth of US$293 billion. Year to date, Tesla shares are now up more than 50 percent.
However, disappointing results from Apple and Amazon last week revived questions about labour shortages, supply squeezes and, in turn, persistently high inflation. Both companies posted results that missed analysts’ expectations. Apple posted revenues slightly below consensus estimates as supply constraints hampered growth, while online retail giant Amazon warned that labour challenges and rising costs would dampen earnings for the rest of the year predicting that “labour inflation” would add $2bn to its cost base in the fourth quarter.
It was a recurrent theme in many recent earnings announcements reinforcing the difficulty that employers from ecommerce warehouses to fast food restaurants are finding in recruiting and retaining workers as heightened consumer spending collides with a historically tight labour market. Starbucks spoke of “rapid” increases in its wage costs and McDonald’s described its staffing environment currently as “very challenging.”
Employers in the US are responding by offering higher pay packages, with new data out last week showing wages and benefits rising at their fastest pace since 2001. This Friday’s monthly jobs report will be closely watched by investors after last month’s payrolls data showed that the US economy added just 194,000 jobs in September, well below forecasts.
Interest rate decision announcements this Tuesday, Wednesday and Thursday from the Reserve Bank of Australia, the US Federal Reserve and Bank of England respectively will all be closely watched for hints that central banks may consider bringing forward the start of interest rate hikes in the face of rising inflation levels.
On commodity markets, oil prices weakened slightly after seven consecutive weeks of gains. Brent Crude oil futures closed down 2.4 percent at US$83.62 a barrel, while gold also eased 0.5 percent to US$1783 an ounce.
US Treasury yields weakened with the 10 year easing 4.8 percent to 1.56 percent, its biggest weekly fall since July. Bitcoin gained 0.7 percent for the week to US$61,400 and the NZ dollar ended the week up 0.2 percent at 71.7 US cents.
WEEK IN REVIEW
Skellerup told shareholders at its AGM it expects first-half net profit will be more than 10 percent higher than in the same period last year. The company reported a $19.5 million net profit for the six months ended December 2020, up 61 percent on the previous first half, while the annual result was a record $40.2m, up 38 percent. Chair Liz Coutts said that demand remained strong across the greater part of its businesses and this was expected to continue. Skellerup shares finished the week up 3.3 percent and are on track to be one of this year’s best performing listed companies with a year to date gain of almost 70 percent.
a2 Milk shares continued their roller coaster ride after disappointing investors with an outlook that indicated no material change to its full-year 2022 trading position sending its shares tumbling. The company had seen a lift in its share price in recent weeks after Australian infant formula company Bubs said they had benefited from some improvement in the Chinese market in recent months. However, a2 said its English label infant milk formula sales showed significant improvement in the first quarter of the current financial year. While sales are still expected to be down in the first half, they will be ahead of expectations, it said. A2 shares ended the week down 8.5 percent at $6.57.
Business confidence slipped in October due to rising cost and inflation pressures according to the latest ANZ business outlook survey. A net 13.4 percent of firms surveyed expect the economy to deteriorate over the year ahead, more than the 8.6 percent who were pessimistic in the preliminary reading and the 7.2 percent level in September. However, expectations for their own activity improved slightly with a net 21.7 percent anticipating their business to grow in the next 12 months, down from 26.2 percent in the preliminary October survey but up from 18.2 percent in September. ANZ chief economist Sharon Zollner said unrelenting cost pressures highlight that it’s “tough going” for businesses right now.
Air NZ told shareholders it expects to have less than half of its government-funded $1.5 billion emergency credit line left in four months’ time. Speaking at its annual meeting, chair Therese Walsh said the airline expects to draw down up to $900m of the Crown Standby Loan Facility, by next February. The facility was established by the Government in March last year to help the national carrier through the Covid-19 disruptions. CEO Greg Foran outlined plans for more frequent regional domestic services once increased domestic flying becomes possible when covid restrictions begin to relax. Air NZ said that it expects to take delivery of two new narrow-body jets in the next few weeks.
Heartland Group told shareholders at its AGM that its digital mortgage book has passed $100 million and it is now lending $30m a month. After launching its digital-only mortgage offering in March last year the banking group said the product was re-launched in October due to the Covid interruption. As a result of cost savings, Heartland said it was able to offer the lowest interest rates in the market. The company said it still expects to deliver a full year net profit between $93m and $96m but is experiencing “lumpiness” in lending due to current lockdown restrictions and supply chain interruptions.
ANZ Bank New Zealand increased its net profit for the year by 44 percent after writing back previous Covid-related charges for bad debts and lending a record amount on mortgages. The bank’s net profit for the year ended September rose to $1.92 billion from $1.34b the previous year, writing back $115 million of previous bad-debt charges compared with a $401m charge last year. It said its home lending increased by $9.3b to $99b, up from the $5.1b it lent on mortgages the previous year, however lending to businesses and farmers fell.
Sky Network Television told shareholders its first increase in annual revenue in more than five years remains on track, despite the latest Covid lockdown. Sky is targeting revenue growth of up to $35 million in the year ending June 30, 2022 based on its forecasts that streaming revenue will eclipse the decline in Sky Box revenue. The company said it also plans to cut $10m-to-$15m of annual costs from the business.
SkyCity Entertainment said the current lockdown continues to cost it around $1 million a day in lost earnings. The closures have seen its flagship Auckland precinct closed for more than 11 weeks, while its Hamilton and Queenstown properties have been closed for seven and three weeks respectively. The company said it expects to claim up to $8.2m in wage subsidies. However, while SkyCity’s in person revenues have slumped, its online casino venture is proving popular with punters and is generating revenues at around $2.5m a week for the year to June.
Port of Tauranga is forecasting an after tax net profit of between $103 million to $110m for the full year despite ongoing global supply chain disruptions which continue to hamper shipping schedules. The company reported a net profit after tax of $102.4m for the year to June though it noted that 106 fewer container vessels visited the port last year. However, container volumes increased 8.1 percent to 311,000 twenty-foot-equivalent units (TEUs), while dairy and kiwifruit export volumes lifted by 6.7 percent and 7.1 percent respectively quarter on quarter.
COMING UP THIS WEEK….
- Westpac NZ – Full Year Result
- Building Consents (Sept) – Stats NZ
- Labour Market Stats (Sept Qtr) – Stats NZ
- NZ Oil & Gas (NZO) AGM
- Vulcan Steel (VSL) listing
- Marsden Maritime Holdings (MMH) AGM
- Downer EDI (DOW) AGM
- Precinct Properties (PCT) AGM
- Residential Mortgage Lending (Oct) – RBNZ
- Spark NZ (SPK) AGM
- The Colonial Motor Company (CMO) AGM