THL - which is in the process of merging with Apollo Tourism - has upgraded its earnings forecast. Photo / Supplied
Investors have been beaten up by the New Zealand sharemarket, which has remained in bear territory thanks to rising interest rates and high inflation.
The benchmark S&P/NZX50 index has fallen by about 17 per cent since the start of the year and is down by just over 20 per cent from the January, 2021 record high of 13,558.19.
Still, the market is up from June's low and has not fared as badly as some others overseas - Wall Street's S&P500 index is down 25 per cent from its peak and the technology-heavy Nasdaq has fallen 35 per cent.
Mark Lister, head of private wealth research at Craigs Investment Partners, says the local market has shown resilience in the face of rising interest rates and very high inflation.
"It has still been an ugly year," Lister says.
"As far as I am concerned, we are still in a bear market, just as you are seeing internationally."
From its 2021 peak, the local market had gone through much more of a "slow burn" decline, whereas the US had "taken an almighty beating" over a shorter time.
"It feels like the short term path for the local market is to go a little bit lower," Lister says.
"We are not really going to get any real stability until interest rates stop going up, and that comes right back to inflation."
As Stock Takes went to press, the markets were keenly awaiting US inflation data for September, with market expectations settling at a monthly rise of about 0.2 per cent.
Regardless of the outcome, the view in the market is that the US Federal Reserve will stick to its very aggressive tightening path, which means the US dollar will remain centre stage while most other currencies stay under the cosh.
The US data may provide some insight into what might follow locally when the New Zealand consumers price index for the September quarter is released on Tuesday.
"The good news is, I think, that the worst is behind us, but I don't feel like this is quite the end of the bear market just yet," Lister says.
Share and house prices would remain under pressure for as long as interest rates continue to gain and inflation persists, he says.
"Investors have been beaten up this year and they are struggling to find a way to see anything positively."
The NZ housing market has continued to weaken, according to the latest REINZ data.
The main listed play on this market is the retirement village sector, which has been sold down hard in expectation of lower future resale prices and possibly an increase in unsold inventories, says Salt Funds managing director Matt Goodson.
"To date, the listed companies have reported solid resale numbers and resale prices have also done well as a big buffer relative to house prices built up in last year's house price boom.
"Whether these solid sales continue is the key question that the market is grappling with.
"Another major concern has been nurse availability and care cost blowouts as hospitals can pay materially more than the funded rates for the retirement sector," says Goodson.
This has seen operators with a heavier care component coming under more pressure.
On the positive side, tourism operator and recreational vehicle (RV) company THL said it had upgraded its net profit forecast for the June 2023 year to above $30 million.
That compares with guidance issued in August of a net profit between $17m and $30.2m.
The company's plan to merge with Australia's Apollo Tourism and Leisure now has approval from competition watchdogs on both sides of the Tasman, and THL's latest guidance includes the impact of an estimated $3.5m in merger-related transaction costs.
THL said the improved outlook was primarily a result of performance in the first quarter of the 2023 full year exceeding earlier expectations.
"Demand and rental yields for the upcoming high season have been above prior expectations, with yields (across the financial year to date and current summer bookings) up by more than 35 per cent on full year 2019 levels in New Zealand and up by more than 70 per cent on full year 2019 levels in Australia," THL said.
Craigs equity research analyst Kieran Carling said THL was a classic "reopening" trade after the lifting of Covid-19 restrictions.
"What we have been hearing recently from the other RV operators throughout Australasia is that demand is extremely strong across the board and yields are also up quite significantly," Carling said.
The key booking cycles for THL are February and October.
"Given how late the government was in announce the easing of restrictions and the opening of borders, previously the expectation for this summer was for trading to be reasonably weak given that RV operators have no had a chance to re-fleet - to get back to optimal levels of fleet.
"What we are seeing now is actually huge pent-up demand now that borders are reopening, further assisted by the weaker NZ dollar, making it a more attractive destination for US tourists.
"It is one of those stocks that can capitalise on the reopening trade because the industry has been really hammered over the last couple of years through Covid."
THL had managed its debt levels well through fleet sales during Covid.
"They are well positioned to do well as borders open and as people start to travel around the world again, whereas some operators have really struggled through the period.
"They are emerging into a structurally less competitive market than was the case pre-Covid - particularly in North America - with fewer competitors around.
"I think they will do extremely well over the next 12 to 18 months, if that takes place," he said.
In the year ahead, demand exceeding supply could result in a shortage of vehicles in the market, which will drive stronger yields.
"There is some caution after the first wave of travel as to what demand will look like as interest rates continue to increase and as people get the travel bug out of their systems.
"Otherwise it is a very strong update from the group," he said.
"Now that the merger has been approved, it should provide further upside."