By PAULA OLIVER
A stream of strong company results is painting a rosy picture of corporate New Zealand but experts are warning against cracking open the champagne too soon.
Researchers and brokers contacted yesterday agreed the results season had been impressive, but said it was unlikely to be followed up with another strong year as the effect of a falling dollar and a shrinking economy kicked in.
Reported results over the past two weeks have shown dramatic profit increases for many companies, including Carter Holt Harvey, whose first-quarter earnings were up from $13 million last year to $90 million this year. Ports of Auckland returned a strong result, and sharemarket darling Baycorp's profits also grew.
But the party could be over quickly for many, because the results are being seen as a spin-off of strong economic growth late last year. That growth has reversed rapidly, and the financial experts are warning the outlook for the corporates is anything but rosy.
"The real test for the corporates is how they look six or nine months out from now," said Cavill White managing director Don Turkington.
A weak kiwi dollar is expected to continue, and inflation could result as prices rise and companies face increased wage demands. That would bring higher interest rates, and an even slower economy, Dr Turkington said.
"Companies reliant on the domestic economy won't be overly optimistic about next year's result, but there will be some winners out of the low dollar and reasonably buoyant commodity prices," he said.
Tourism groups such as Auckland International Airport are expected to enjoy good times, as are companies like Montana, Lion Nathan and Fisher and Paykel, all of which have strong offshore earnings.
Nigel Scott, a dealer at ABN Amro, said companies like The Warehouse had long been saying they were holding prices by squeezing suppliers, but that could only go on for so long.
"Eventually prices are going to have to go up, causing inflation. People are likely to tend towards safer stocks like electricity, banking and energy, but tourism will also do well ... "
Fletcher Energy was likely to be the strongest beneficiary of the weak dollar, but overall the conditions did not augur well for domestic players.
Fuel cost increases would have a trickle-down effect on sectors like forestry. A slump in building in both Australia and New Zealand would further affect forestry companies. Manufacturers would also feel the pinch of a low dollar because many of their raw materials were imported.
"There are more negatives than positives, and unfortunately New Zealand is starting to look like the retirement centre of the South Pacific," Mr Scott said.
Neil Paviour-Smith, head of research at Forsyth Barr, said the outlook for corporates was mixed.
"Oil prices are strong, so energy companies will be expected to continue positively, and the rural provincial export sector will probably perform fine with a low dollar," Mr Paviour-Smith said. "The short-term outlook is reasonable in terms of earnings growth, but further out many will be rightly concerned."
Good company results, but shoals ahead
AdvertisementAdvertise with NZME.