The sharemarket has withstood a slew of capital raises so far this quarter. Photo / File
The sharemarket has withstood a slew of capital raises so far this quarter. Photo / File
Just when investors thought it was safe to re-enter the New Zealand sharemarket, they get hit with $3.35 billion worth of capital raises.
While the sharemarket is feeling the pinch of demands on the shareholders’ purse, it has nevertheless managed to perform over the quarter, which ends on Monday.
Mark Lister, investment director at Craigs Investment Partners, said the market had been building momentum in July, was up slightly in August, and in September had been tracking along “quite nicely”.
“We are still going ok. However we have had the wind taken out of our sails by some big capital raises from Auckland Airport, Infratil and Fletcher Building,” Lister said.
“Two of those were positive raisings - companies that are growing and performing well.
“The other one not so much, but sadly we have become accustomed to that with Fletcher Building - not just over the years but over the decades,” he said.
Mark Lister is investment director at Craigs Investment Partners. Photo / Supplied
Salt Funds managing director Matt Goodson said the last few days had been very much dominated by equity raisings, which had created funding pressure in the market.
“Auckland Airport was not entirely unexpected but was earlier and larger than investors had anticipated.
“Fletcher Building was also not a shock and has been viewed as a ‘clearing the decks’ exercise by new management.
“The raising was interesting in that no earnings guidance was provided for this year but rather a range of profit sensitivities to possible economic outcomes,” he said.
“The market appears somewhat split between viewing this as an opportunity to buy a de-risked situation at the bottom versus a view that this is a company with a revolving door of management and poor governance over many years,” Goodson said.
“One can only hope that new management gets a tail-wind from a gradually recovering economy,” he said.
Forsyth Barr said Fletcher Building’s (FBUs) issue was highly dilutive, adding 37% to the shares on issue.
“While the raise is unsurprising, given elevated gearing, volatile trading conditions, and an incoming management team, it has come sooner than we expected,” the broker said in a note.
“We see value in the New Zealand core and the upcoming strategic review is (another) opportunity to refocus the business, but the investment case is clouded by continued cash flow drag from the construction and Australia divisions.
“New Zealand demand should improve as interest rates are cut. Looking through cyclically low near-term earnings, FBU is trading on a two-year forward price-earnings ratio of 10.9 times, which is in line with its long-run average,” it said.
Fletcher Building is hoping to raise $700 million to shore up its balance sheet. Photo / Getty
Best quarter since 2020
Lister says the market is still performing pretty well this quarter, up by about 5.2% and is on track for the best quarter since 2020.
The index is still 8.5% below its record high of 2021, but the NZX50 includes dividends, unlike most others.
With dividends stripped out New Zealand shares are still about 18% below their peak.
Markets are fully pricing in a 25 basis point cut in the official cash rate on October 9 and, in the wake of the US Fed’s 50 basis point cut last week.
Odds are building for a larger, half-point, move by the Reserve Bank.
Takeover target Arvida was the top performer over the quarter, gaining 78.5%, followed by KMD Brands up 43% and Oceania Healthcare up 41.5%.
On the downside, Spark was the biggest loser, with a 22% decline, followed by a2 Milk (17.5%) and Contact Energy (9%).
Tower upgrade
Tower shareholders have seen another set of earnings upgrades as they have been able to renegotiate their reinsurance terms for 2025 and beyond on better-than-expected terms.
This is a mix of the reinsurance market softening due to a lack of calamities around the world and Tower’s ability to accurately price risk.
“Ultimately, this will be good news for policy-holders as some of the saving gets passed on and likely limits future price increases,” Goodson said.
“However, this is an industry which is still coming back from some major loss experiences.”
Tower now expects underlying net profit after tax for the financial year ending 30 September 2024 to be greater than $45m, up from a previous guidance of $40m.
Forsyth Barr estimates that the sharemarket is about 39.4% foreign-owned as of June 2024, up 200 basis points from the March quarter and by a similar amount on the prior corresponding period (June 2023).
The broker’s estimate of Australian ownership of the NZ market (as at the June 2024 quarter) is also up by 97 basis points, with recent data from July and August indicating minor changes.
Forsyth Barr’s international ownership estimate is now 268 basis points below the all-time high, set in March 2020, where it stood at 42.1%.
“Our estimate of Australian ownership of the S&P/NZX 50 (by total float market cap) is 12.8% as of August 31, and continues to show a steady recovery since the dip of April 2022. In terms of company-specific activity over the last three months, we assume the large change in Infratil ownership is primarily due to the placement that occurred in June,” it said.
Positive curve
The good news for the market has been in the form of the closely followed yield curve turning mildly positive.
Short-term rates have now sunk beneath long-term rates over the last few months after being negative for most of the post-Covid economic slowdown.
The difference between the two and 10-year swap rates is now around 28 basis points, and the signs are that it could soon turn more steeply positive, indicating a return to more normal economic conditions after a prolonged slowdown.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
