PAUL MCBETH: Still missing that mojo?
The recovery, like winter, is coming.
Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years.
Underwhelming isn’t really the right word to describe the latest corporate earnings season on the NZX.
Sure, it happened, but did it elicit anything more than a murmur?
Most commentators in marketland have tended to sum it up as mixed. A couple of strong performers and some subdued results, but given the general economic malaise and the period spanning the first six months of the year, expectations weren’t high.
Unsurprisingly, the S&P/NZX 50 index was up a modest 0.8% in August, compared to a 2.6% gain for Australia's S&P/ASX 200 index and a 1.9% increase for Wall Street’s S&P 500 index, where those economies have seemingly shown greater resilience through the downturn, notwithstanding some pretty dire jobs figures in the US that have ramped up bets on the Federal Reserve cutting its key interest rate later this month.
Of course, there’s a lot that makes up a market index and we can see just how variable that range is from a2 Milk’s near-22% gain in August and SkyCity Entertainment Group’s 26% slump.
The gyrations are streets apart, but underline the current thinking about the two companies, with the infant formula firm attracting a little more optimism about its new manufacturing plans, which will see a shift from Mataura Valley in the deep south to Pokeno, just south of Auckland, and presumably make for an easier route to market.
Hold tight
Meanwhile, SkyCity’s balance sheet rebuilding through a deeply discounted, and unpopular, share sale underlined just how tough it’s become to make money from people’s penchant for gambling.
It’s always helpful to remember that those helicopter views are just that, and the components and constituents that make up an index, or an economy for that matter, are just as important as the headline figure.
For instance, take Forsyth Barr’s wrap of the earnings season.
Analysts Aaron Ibbotson and Matthew Leach pointed out that it was a season of more downgrades, where expectations were dashed at twice the pace of pleasant surprises, and yet investors generally responded positively.
They put that down to the unusual situation of people adequately managing their expectations, having gone in like Winnie the Pooh’s dour friend Eeyore with an ‘it could be worse, not sure how, but it could be’ attitude.
But it was a little more than that, with the resumption of an Obama-like hope that things are actually getting better, as corporate bigwigs got away from simply blaming a rugged economy and outlined plans to cut costs and overhaul operating structures – something you’d typically think was business as usual.
Share it fairly
And to be fair, those canny corporate leadership teams know their audience.
While earnings and outlooks tended to be on the negative side of things, local shareholders love cash and declared dividends continued their trend of happy August surprises.
What’s more, a very welcome positive trading update from Hallenstein Glasson Holdings – which has continued to thrive in the always tough rag trade – added to the slightly upbeat tone from Aussie retailers JB Hi-Fi and Harvey Norman about their Kiwi footprints.
Hard data from Statistics New Zealand showing consumers are spending, even if they hate themselves for doing so, doesn't hurt that sentiment.
Same as it ever was
That might be surprising given the daily diet of how New Zealand’s going down the gurgler, with an unmanageable level of public debt, a moribund housing market that’s increasingly irrelevant to those born after 1990, and concentrated banking and energy sectors making life unaffordable for the average Kiwi battler.
Putting to one side that facetious oversimplification of all that's wrong in Aotearoa, the boom in New Zealand’s agricultural sector has been reminiscent of the dairy sector’s buffer to the double-dip recession through the global financial crisis when surging Chinese appetite for the white stuff helped flood the heartland’s coffers and kept farming equipment flying out the door, even if it’s also pushing up prices for poor old food processors desperate to keep their customers’ bellies full.
Once the Reserve Bank’s rate cuts start making meaningful reductions in the mortgage bills of many households and giving businesses a bit more confidence to take on staff or invest in that new piece of kit, construction and manufacturing – two sectors that typically walk in tandem – should start picking up, even if major industrial energy users continue to grapple with the margin squeeze they face to simply keep their factories open.
All of which isn’t so much a case of New Zealand finding its lost mojo in the box at the back of the cupboard. The economic cycle was always going to turn after a few years of belt-tightening in the aftermath of our zero-interest-rate fuelled sugar binge.
And if organisations are getting back on a level footing and hungry to make some headway, rather than simply treading water to keep their heads above water, that will be a very welcome thing indeed.
Image from Curious News.
