With the New Zealand sharemarket trading at record levels there is little room for disappointment during the upcoming corporate reporting season and companies will be punished for any negative surprises, analysts say.
Firms including Meridian Energy, Mighty River Power, Fletcher Building, Port of Tauranga and Sky City Entertainment will report full-year financial results this month.
The reporting season comes amid an unrelenting bull market, well into its seventh year, that has pushed the S&P/NZX 50 up by almost 16 per cent since January. The market's 12-month forward price-to-earnings ratio of 21.6 times is roughly 35 per cent above its 10-year average of 16.1 times, according to First NZ Capital.
Harbour Asset Management portfolio manager Shane Solly said companies needed to deliver earnings to justify the elevated levels their shares were trading at. "Investors are paying for perfect execution so we need to see that execution."
Solly said an absence of negative trading updates in the lead-up to the reporting period boded well for investors.
"There have been no really major pre-result profit downgrades in New Zealand - in fact there's been a couple of upgrades," Solly said, adding that recent annual meetings had been "pretty benign"."On that basis we should expect an okay results season."
Craigs Investment Partners analysts Frances Sweetman and Roy Davidson said in a research note that earnings expectations for the 2017 financial year were stronger than those for the year just past.
That meant outlook statements would be a key source of risk.
"With markets trading on lofty multiples we expect those that do deliver poor results, or weaker than expected outlook statements, to be punished," the Craigs analysts said. "As such, some share prices could be volatile."
They said New Zealand companies were expected to fare better than their counterparts across the Tasman.
"This is largely due to the superior economic conditions in New Zealand, as well as the greater proportion of more defensive companies listed on the New Zealand market," Sweetman and Davidson said.
"The number of resources companies in the Australian index - and the dominance of the Australian banks - also drags down the earnings expectations for the ASX 50."
Craigs expects defensive stocks including Sydney Airport and Auckland Airport, as well as cyclical favourite Freightways, to report solid results.
Meridian Energy, which reports its full-year result on August 24, could pay a special dividend given it is holding excess capital, while Air New Zealand - reporting on August 26 - could potentially distribute to shareholders some of the cash gained from the disposal of its stake in Virgin Australia, the sharebroker said.
Craigs said there was potential for clothing retailer Hallenstein Glasson to report a weak result.
August 10 : Sky City Entertainment
August 17: Fletcher Building, NZX
August 18: Trade Me, Port of Tauranga, Skellerup, Spark
August 24: A2 Milk, Genesis Energy, Meridian Energy, Metlifecare, NZ Oil & Gas, Vector
August 26: Air NZ, CBL Corporation, Tourism Holdings, Vista Group
Source: Craigs Investment Partners