Stocks break new records, despite business gloom

The latest round of New Zealand corporate earnings largely delivered as expected, with most companies reporting sales and profits within analysts’ predictions.

The local stock market surged to a record in August despite few companies outperforming, and defying increasingly gloomy business confidence.

The bulk of 34 listed companies’ earnings were posted between August 8 and August 29 in what broking firm First New Zealand Capital described as an earnings season that “delivered few surprises”.

Research analysts Paul Turnbull and Arie Dekker said of the 15 reporting companies valued at more than $2 billion, just one – SkyCity Entertainment Group – reported pre-adjustment earnings that differed from FNZC’s forecasts by more than 2 per cent.

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Weaker business confidence, which has been a political hot potato for months, didn’t overshadow earnings, although a number of companies noted a weaker outlook. Confidence surveys also gauge firms’ measure of their own activity, something that tracks more closely to economic growth than business sentiment, and has also been deteriorating in recent months.

FNZC’s analysts said the more cautious tone in management outlook came from cyclical stocks, which typically track the ups and downs of the wider economy.

Air New Zealand’s underlying earnings guidance weakened as jet fuel prices continue to increase, while Fletcher Building expects land development earnings to drop in the year ahead as residential construction softens in New Zealand and Australia. Courier and information management company Freightways is targeting earnings growth in 2019, but is cautious due to weaker business confidence.

Mark Lister, head of private wealth research at Craigs Investment Partners, said there were a number of reasons why weaker business confidence didn’t drag earnings lower.

The divergence between earnings and confidence was partly due to the type of companies which are members of the sharemarket – big businesses

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