13 May 2024

Fund managers predict mixed corporate earnings season

8:24 am on 13 May 2024
Business woman hand writing on charts and graphs that show results.

Photo: 123RF

The upcoming corporate earnings season is expected to be mixed with some companies more exposed to the downturn in the local economy than others.

A few of the 22 companies to report this month are expected to be more resilient than others to economic pressures, such as insurer Tower, which was seeing an improvement in premiums.

Salt Funds managing director Matthew Goodson said balance sheets of property sector companies would be closely watched.

"Generally occupancy is still okay. Rental growth is quite good thanks to inflation. But the valuation cap rates have expanded due to high interest rates and that has lifted the gearing to levels that in some cases are starting to get a bit stretched," Goodson said.

Retirement village operators may also be struggling as would-be occupants find it more difficult to sell their existing homes, he said.

"Mainfreight, which has been a great long-term price company, does have some cyclical exposures. So it'll be an interesting battle between the short term cyclical pressures and the longer term secular growth. So there's a variety of views around that one and that'll that'll be a key one a lot of people are watching," Goodson said.

Infratil's exposure to data centre growth would offset any potential weakness in its mobile service One New Zealand, following a recent profit warning by its major competitor Spark, Goodson said.

Devon Funds Management head of retail Greg Smith said companies exposed to the domestic economy were likely to be harder hit by the local economy while those with global exposure were likely to do better.

"You've got some companies which are a little bit more challenged. Napier Port is heavily reliant on the domestic situation - cargo volumes have been in decline. So there might be some challenges there," Smith said.

"Ryman, there's a big question mark given their effective downgrade back in February.

"Sentiment towards property-related stocks are not particularly positive.

"Serko, expectations are fairly muted there as well with a slowdown in global corporate travel.

"It could be once again quite a mixed-feeling earning season."

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