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New Zealand company earnings probably were little changed in the six months through June amid modest economic growth and slowing global sales, according to the country’s biggest non-government fund manager.
Operating profit at the nation’s 43 largest publicly traded companies that will report in the next six weeks likely rose 0.6 percent from a year earlier while earnings per share fell, Guy Elliffe, head of New Zealand equities at AMP Capital Investors, told reporters in Wellington today. AMP Capital manages NZ$1 billion ($799 million) in stocks.
“It’s going to look pretty sluggish,” he said, referring to the January-June results. “There is still margin pressure. Looking forward, based on the economic outlook, we see some sort of rebound.”
New Zealand consumers have reduced spending while export growth has slowed, curbing the nation’s economic recovery. Weakness in Australia’s construction industry adds to pressure on earnings by companies such as Fletcher Building Ltd. (FBU), the second-largest listed stock, Elliffe said.
“Economic growth is being reflected in the fundamentals we see at the company level,” he said. “We’ve got a high degree of confidence that valuations are attractive, dividends are sustainable and growing, cyclical stocks are absolutely cheap and the economic rebound will occur.”
Still, investment opportunities exist among stocks with high dividend policies or those with the potential to increase future earnings when the economic recovery accelerates, he said.
Companies such as utilities, casino owners and electricity retailers have high dividends or the prospect for strong dividend growth, and many are in industries where competition is limited, preserving their value, he said.
Cyclical companies that currently have depressed earnings are also “materially cheaper” than so-called defensive stocks, Elliffe said.
“We wouldn’t say defensive stocks are overvalued; we just think they are expensive relative to some of the cyclical names,” he said. “We see a lot of opportunities of companies that will benefit from the economic turnaround.”
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