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Profit pain Stocks to watch this earnings season [VIDEO] · The SME Stream

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  Speaker 1: The information provided in this program is of a general
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  Speaker 1: nature and is not intended to be personalized financial advice.
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  Speaker 1: We encourage you to seek appropriate advice from a qualified
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  Speaker 1: professional to suit your individual circumstances. Most of our major
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  Speaker 1: listed companies are releasing there for your finances this month,
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  Speaker 1: and expectations are for it to be ugly again, likely
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  Speaker 1: marking the sixth season in a row of net negative
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  Speaker 1: revenue growth.
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  Speaker 2: We've yet to see, obviously the bottom of this earning cycle,
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  Speaker 2: so this next couple of weeks we've got thirty plus
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  Speaker 2: companies reporting. That's going to be a really important as
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  Speaker 2: to have we found the bottom yet.
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  Speaker 1: High interest rates have put our economy in poor shape,
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  Speaker 1: setting the scene for rate cuts this year. While that
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  Speaker 1: may provide some hope for investors down the line, the
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  Speaker 1: pain is still having an impact on company profits. The
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  Speaker 1: number of profit downgrades in our market have exceeded any
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  Speaker 1: upgrades over the last three months leading into the earning season.
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  Speaker 1: According to Forsyth Bar, retailers tied to consumer spending are
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  Speaker 1: specifically doing it tough, with the warehouse Katmandu and Michael
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  Speaker 1: Hill all warning sales a week. Cyclical industries such as
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  Speaker 1: construction are also challenged with demand for building products like
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  Speaker 1: steel lower than the GFC, impacting Vulcan steel, steel and
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  Speaker 1: tube and of course Fletcher building. A slow down in
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  Speaker 1: house sales and little sign of price recovery is a
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  Speaker 1: struggle for some retirement village operators, while commercial property companies
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  Speaker 1: have been selling down assets to help handle higher rates.
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  Speaker 1: Travel demand is also down and could cause Air New
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  Speaker 1: Zealand to cut dividends to shareholders. Throughout this period, companies
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  Speaker 1: have had to keep a very close eye on costs
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  Speaker 1: and eke up official games where possible to protect margins
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  Speaker 1: and ride out the storm. Just how much longer they
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  Speaker 1: can keep it up will all be revealed this month
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  Speaker 1: when about thirty of the interdex listed company's release financial statements.
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  Speaker 1: Shane Solely from Harbor Asset Management has a view on
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  Speaker 1: when we could see a revenue recovery. Shane's so good
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  Speaker 1: to see you, Thanks having us appreciate it.
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  Speaker 3: Nice to see you too.
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  Speaker 1: Earning season upcoming. What are your expectations, Well, not super high,
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  Speaker 1: to be honest with you.
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  Speaker 2: We've got Marcus got pretty low expectations. I think this
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  Speaker 2: is what we've seen in the last few quarter half
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  Speaker 2: year results and four year results, and obviously every three
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  Speaker 2: months we get a band of these results. Market expectations
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  Speaker 2: have been quite minus and this time round they're pretty modest.
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  Speaker 3: You know, we're still.
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  Speaker 2: Lapping a very low economic activity period of time. Cost
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  Speaker 2: structures is still pretty full, so marcus are a little
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  Speaker 2: bit too.
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  Speaker 3: Then there's not a lot of excitement out there about earnings.
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  Speaker 1: We've had what three years of this starche It's like
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  Speaker 1: we can.
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  Speaker 3: Agree to that once.
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  Speaker 2: Yeah, yeah, Well, I think we're getting closer to a
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  Speaker 2: go one and this could be a bit of a
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  Speaker 2: turning point, I think, you know, assumably there's a we're
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  Speaker 2: wary about how bad this last half has been, and well,
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  Speaker 2: last twelve months have been, but we've seen some green
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  Speaker 2: shoots of labor costs not the problem they were. Energy
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  Speaker 2: costs still a bit of a headwind untill there's a
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  Speaker 2: bit of a headwind. Maybe we see the peak in
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  Speaker 2: those energy costs, Maybe we see a peak in interest costs.
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  Speaker 2: So we're getting a few maybees and sumly the.
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  Speaker 3: Tone has changed.
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  Speaker 1: How have we seen this economic pain to date actually
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  Speaker 1: flow through to profits? How bad has it been in
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  Speaker 1: percentage terms?
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  Speaker 2: Yeah, we've seen a lot of companies that are very
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  Speaker 2: cyclical exposed, so companies that depend on activity in the equantumy,
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  Speaker 2: those are the ones that have been hit really hard,
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  Speaker 2: down fifteen to twenty thirty forty percent in some cases,
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  Speaker 2: and their any so been gapping down. Of course, a
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  Speaker 2: lot of our own new ze income there is their utilities,
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  Speaker 2: their growth stops, they have a global face and they've
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  Speaker 2: been less impacted. So it's been very much haves and
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  Speaker 2: hair knots. So it's been a very bipolar market.
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  Speaker 1: Those cyclical stocks. You're talking construction, building products, retailers, just
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  Speaker 1: how poor have their.
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  Speaker 3: Performances past few years.
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  Speaker 2: You know, Fletcher Building has been unfortunate to post a
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  Speaker 2: child for this earning's reset very challenging and a major
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  Speaker 2: shake up for the business. And assume we feel for
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  Speaker 2: the people involved in the business, but there was a
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  Speaker 2: company that was doing quatibly well, strong demand, and then
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  Speaker 2: we've had a cost blowout and then we've had.
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  Speaker 3: A solid reduction in demand.
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  Speaker 2: So they're assuming that's the sort of business that has
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  Speaker 2: been really put through the mill. The only good thing
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  Speaker 2: is we've seen somewhere else changes in terms of how
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  Speaker 2: management goes on in that business and other businesses that
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  Speaker 2: are similist that comes like bulk and steel still in tube.
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  Speaker 2: They've really been in the under pressure some of the
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  Speaker 2: transport companies and definitely the retailers.
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  Speaker 3: Some of the retailers have done really well, others less.
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  Speaker 1: So it's been interesting to watch, hasn't it. Especially on
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  Speaker 1: the retail front. You've got the likes of Brisco It's
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  Speaker 1: coming out with record half your sales, and then you
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  Speaker 1: have others the warehouse, Catman do the complete opposite direction.
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  Speaker 1: What do you think resulted in such a variance, And
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  Speaker 1: even those types of industries where really they should be
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  Speaker 1: all performing the same, but they're not.
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  Speaker 2: Yeah, competitive environments are quite different. So soon we we're
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  Speaker 2: seeing a very intense competition in a lot of different
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  Speaker 2: parts of say, for example, competitors for the warehouse, competitors
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  Speaker 2: for Catmandu. Risco's really carved down a niche where they
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  Speaker 2: continue to pick up market share.
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  Speaker 3: It's been a big driver.
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  Speaker 2: There's a few other businesses like that, but even in
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  Speaker 2: tough times, they can continue to grow market share.
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  Speaker 1: If there's been any silver lining about the cycle that
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  Speaker 1: we are very much still in. But on our way
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  Speaker 1: out of as you say, is that when this tide
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  Speaker 1: does go out, you do start to see who's swimming naked. Right.
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  Speaker 1: This has really put pressure on management teams to keep
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  Speaker 1: an eye on costs, to protect profits and eke out
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  Speaker 1: some efficiency gains. Who have you been impressed by motorcycle?
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  Speaker 3: I think you just hit a really key point.
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  Speaker 2: I'm really excited about the structural changes that we're seeing
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  Speaker 2: inside businesses. This is if I look back through history
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  Speaker 2: when we have tough times and management and boards are
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  Speaker 2: forced to really look back and say, what.
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  Speaker 3: Are we good at? What do the decent returns? How
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  Speaker 3: do we use capital?
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  Speaker 2: Well, invariably it's the two, three, four, five years after
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  Speaker 2: those events when the returns that are really quite attractive.
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  Speaker 2: So I think there are some businesses that are really
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  Speaker 2: taking some tough medicine. I'm not going to name them,
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  Speaker 2: but you know, assuming some of the companies in some
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  Speaker 2: of the businesses we've talked about already, retirement age Q sector,
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  Speaker 2: that's the space where there's been some being changes and
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  Speaker 2: looking quite optimistic on that medium term. So definitely the
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  Speaker 2: tone has changed that we might be lapping the bottom.
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  Speaker 1: It's been tough medicine for investors though, too, with some
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  Speaker 1: of those evaluation receipts and pretty poor returns from our
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  Speaker 1: market over the past few years. Is this the bottom?
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  Speaker 1: Is it all upside from here?
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  Speaker 2: Shame? I think we've still got to fit bumps in
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  Speaker 2: the road to come along. We've yet to see obviously
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  Speaker 2: the bottom of this earning cycle. So this next couple
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  Speaker 2: of weeks we've got foody plus companies reporting. That's going
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  Speaker 2: to be really important as to have we found the bottom.
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  Speaker 2: Mit I think interest rates, while they don't solve everything,
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  Speaker 2: lower interest rates will provide a little bit of relief.
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  Speaker 2: I think that might attract a little bit more capital
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  Speaker 2: back to the market. And I think this reset that
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  Speaker 2: we talked about in terms of companies have to use
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  Speaker 2: capital better. That's that's where the real money is made,
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  Speaker 2: the earnings growth medium terms. So I think we're near
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  Speaker 2: the bottom if we haven't seen the bottom, but I'm
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  Speaker 2: unfortunately we have to tell you after the reporting c sorry.
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  Speaker 1: I look forward to that. As Shane, you mentioned a
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  Speaker 1: bit more interest into capital markets. Are you seeing some investors,
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  Speaker 1: more investors with a bit more capital knocking on your
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  Speaker 1: door saying yeah, we're keen to come off the sidelines,
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  Speaker 1: take some money out of cash and savings, for old
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  Speaker 1: into markets.
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  Speaker 3: Yeah, something happened a few weeks ago.
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  Speaker 2: This reserve bacons on Monitored Policy Release, the MPR.
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  Speaker 3: The tone changed in there.
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  Speaker 2: There is more dubbish, more about we might be thinking
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  Speaker 2: about thinking about cutting rates, and that soonly has gotten
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  Speaker 2: investors thinking about maybe these high interest rates that we've
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  Speaker 2: been able to park money in cash park may intended deplosit.
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  Speaker 3: Maybe that's not around any year's time. We've got to
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  Speaker 3: start putting it to work.
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  Speaker 2: So we've already seen a little bit of a little
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  Speaker 2: bit of a spark. I think as the central Bank,
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  Speaker 2: Zero Bank and US own and other central banks cut rates,
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  Speaker 2: that will indeed open up a bigger hopefully not whether
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  Speaker 2: it's a dam, whether it's a river, just a bigger
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  Speaker 2: flow of capital back to our market. So we haven't
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  Speaker 2: seen that for a long time either.
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  Speaker 1: I was going to say any liquidity at this point
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  Speaker 1: would be nice, wouldn't it. Well, we may be seeing
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  Speaker 1: a little bit more investor interest in our market sharing.
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  Speaker 1: There's also interest from people launching takeover offers, especially private
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  Speaker 1: equity firms. Can we surpass that threat?
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  Speaker 3: Do you think? Yeah?
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  Speaker 2: Look, I think you know takeovers are part of capital markets,
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  Speaker 2: just like initial public offerings that IPOs are, they're either
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  Speaker 2: any of the spectrum. We're at the point where at
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  Speaker 2: the moment, for many businesses it's easier to.
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  Speaker 3: Buy a business rather than to build your business.
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  Speaker 2: You know, where similar businesses are being valued by share markets.
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  Speaker 2: It's actually more attractive just to go and buy the competitor,
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  Speaker 2: to buy the bolton. And so we've had a little
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  Speaker 2: bit at already, but some I think it's interest rate
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  Speaker 2: to stabilize more.
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  Speaker 3: Wouldn't be surprised to see a little bit more of it. CEOs.
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  Speaker 3: We need some more of them.
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  Speaker 1: Do you think that will get some appointments with announcements
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  Speaker 1: this financial ending season?
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  Speaker 2: Yeah, Look, I think there's a few appointments that we
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  Speaker 2: desperately need. The only thing I say is I prefer
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  Speaker 2: boards to take the time and get the right people in.
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  Speaker 3: It's hard.
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  Speaker 2: There's a lot of these roles that we think that
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  Speaker 2: I should be able to fill those those particular opportunities.
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  Speaker 3: It's difficult.
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  Speaker 2: There's only a small number of people that actually meet
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  Speaker 2: the requirements. There's some really challenging roles out there.
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  Speaker 3: It's any people with the right attitude and also the
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  Speaker 3: right mandate.
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  Speaker 2: Boards need to give them a basically opening to fix things,
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  Speaker 2: to do the things they need to do, and not
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  Speaker 2: be hindered by history, be able to get in there
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  Speaker 2: and really make the changes they need to do. Remuneration
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  Speaker 2: is another important thing, how they are paid, as how
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  Speaker 2: we as investors need to make sure that they're actually
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  Speaker 2: working for us. So I think it's as important as
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  Speaker 2: how they are appointed as to when they're appointed assumably
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  Speaker 2: who will be crucial, but we want to see that
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  Speaker 2: they're the right people.
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  Speaker 1: What I've noticed the cycle is how active boards have
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  Speaker 1: had to be, not only in trying to find executives
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  Speaker 1: to lead these companies that they lead from the board table,
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  Speaker 1: but also just having to be active in operations more
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  Speaker 1: so than usual and be across the box more so
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  Speaker 1: than usual. What have you kind of taken out of this, I.
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  Speaker 2: Think if we go back to COVID, it's been a
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  Speaker 2: really challenging time for boards, and I think there's a
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  Speaker 2: lot of boards that get you know, I'm fairly tainted
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  Speaker 2: with things that've done or not done, and I think
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  Speaker 2: sumly some have done a much better.
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  Speaker 3: Job than others. Others have got a lot of work
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  Speaker 3: to do.
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  Speaker 2: But in the context of what has been probably one
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  Speaker 2: of the most challenging times to be a board member.
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  Speaker 2: You know, some companies have done incredibly well. We are
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  Speaker 2: looking forward to a little bit more change in some
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  Speaker 2: of the boards. I feel that are endue a bit
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  Speaker 2: of a refish and suminingly, that's something that I think
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  Speaker 2: is good for investors in the medium tom It has
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  Speaker 2: to begin midlight management. It has to be done in
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  Speaker 2: a way that's constructive and aligned with what investors need
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  Speaker 2: to see. So I think and boards have done it tough,
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  Speaker 2: and they've certainly someone that have done a good job.
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  Speaker 2: Others know they need to work a little bit harder,
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  Speaker 2: and maybe that suggests it's time for a refresh.
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  Speaker 1: Can I read into that any further shape about any
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  Speaker 1: particular companies where performance has been poor that you think
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  Speaker 1: boards are responsible for.
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  Speaker 2: Look, I think there's as many that have done phenomenally well,
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  Speaker 2: it's done phenomenally badly. So I don't want to sort
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  Speaker 2: of name anybody. It's not reasonable. There's a lot of
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  Speaker 2: companies that are doing a tough job. They're doing it tough,
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  Speaker 2: it's hard work, and so I think rather than throwing
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  Speaker 2: shade on anybody, you know, there's a couple that have
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  Speaker 2: done phenomenally well, and I think, you know, we need
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  Speaker 2: to champion them as much as we need to belittle the.
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  Speaker 3: Others net net.
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  Speaker 1: How do you think we'll look back on this in
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  Speaker 1: a few years time. Will this be one of the
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  Speaker 1: tougher economic periods that our listed companies have ever had
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  Speaker 1: to go through?
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  Speaker 2: Well, look, I think companies have to be ready for
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  Speaker 2: a bunch of different scenarios, a bunch of different economic
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  Speaker 2: scenarios and trade scenario. So I think this is just
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  Speaker 2: what companies have to do. But it's definitely been more
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  Speaker 2: challenging in terms of volatility, the ups and downs. And
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  Speaker 2: this is why I think, you know, when we look back,
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  Speaker 2: it'll be who use this as an opportunity to really
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  Speaker 2: reset their business and think about where they create value
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  Speaker 2: and how they create value in the medium turn. And
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  Speaker 2: I think that's, as I said, why I'm getting quite
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  Speaker 2: excited about the outlook for New Zealand. The tone has changed.
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  Speaker 2: I think we're probably have hit first year. Recently, we
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  Speaker 2: sort of found out we could go forward. Maybe we
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  Speaker 2: do a bit of idling during this reporting season and
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  Speaker 2: as a central bank before they really get going on
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  Speaker 2: the cutting. But I think we've found out that we
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  Speaker 2: can actually move forward.
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  Speaker 1: And VISs love certainty, but there isn't much of it
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  Speaker 1: in global stock markets at the moment. If you can
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  Speaker 1: give us a definitive time frame, if you could look
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  Speaker 1: into your crystal ball, shame, when will we be out
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  Speaker 1: of this? When can we expect to see some positive
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  Speaker 1: revenue growth from New Zealand.
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  Speaker 2: Here in New Zealand, I think in the next one
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  Speaker 2: to three years is a reasonable time frame. But really
• 13:00
  Speaker 2: when you're investing in shares, you should be looking five
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  Speaker 2: years plus. So's that's the time frame. If it's less
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  Speaker 2: than five years, than probably not the.
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  Speaker 3: Place for you to be globally.
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  Speaker 2: Globally, I think, I think it's a similar framework. I
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  Speaker 2: think you know, we've got a really unusual time at
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  Speaker 2: the moment. We've got some major geopolitical events going on,
• 13:19
  Speaker 2: significant election periods unfortunately, and Middle East tension is still high.
• 13:24
  Speaker 2: We've still got issues in terms of the Ukraine War.
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  Speaker 2: There's a pretty challenging period of time. I've seen this before,
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  Speaker 2: if you go back over the last twenty thirty, forty
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  Speaker 2: fifty sixty plus years, Unfortunately, ab things occur again, and
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  Speaker 2: to get it again, we're just at a very heightened
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  Speaker 2: period of time. So yeah, I think, you know, it's
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  Speaker 2: appropriate for investors.
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  Speaker 3: To demand to be rewarded for risk.
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  Speaker 2: In some cases that risk is getting more awardered and sermly,
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  Speaker 2: I think when we look at New Zealand, we look
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  Speaker 2: relatively more attractive than we have done for a little.
• 13:53
  Speaker 1: While markets go up, markets go down, it's about time
• 13:56
  Speaker 1: the index went up.
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  Speaker 3: I think it's about time the indets up.
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  Speaker 2: But we've appeared to be patient, you know, the same
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  Speaker 2: that it's hitting, it's starting to feel like it's got the.
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  Speaker 3: Right direction the tide. Maybe it's coming back and rather
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  Speaker 3: than going.
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  Speaker 1: Out, patience is key. Thank you so much for your time.
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  Speaker 3: Shan gets Treasure ready