Manawa Energy looks set to merge with Contact Energy. Photo / Supplied
Investors will get a window into corporate sentiment when the reporting season gets under way later this month.
Takeover target Manawa sets the ball rolling with its annual result on May 16, but the main event will be Fisher and Paykel Healthcare’s (FPH) result on May 28.
Brokers Forsyth Barr said the season was unlikely to provide a good “read” on the New Zealand economy because too few domestically exposed companies with even modestly cyclical earnings will report.
“It may, however, offer some insights into investor positioning and sentiment.
“As a general rule, it is difficult to pinpoint the end of a bear market.
“By the time earnings estimates and macro indicators have turned, it is too late.
“One indicator is how stocks react to bad and good news,” it said.
When stocks stop going down on bad news, or start going up on neutral news, it is a good sign that a lot of bad news is already in the price, Forsyth Barr said.
Tourism Holdings, down -11% on an earnings downgrade on April 16, suggested the bad news was not in the price, it said.
“Mainfreight (up +12% on relatively neutral news on May 3) suggests we may be getting close,” Forsyth Barr said.
The upcoming earnings season is heavy on real estate investment trusts (REITs).
“The listed property sector has had a soft start to 2025, but we remain constructive,” the broker said.
“While we don’t expect significant surprises in the FY25 results themselves, they should highlight: (1) robust portfolio occupancy and continued like-for-like rent growth; (2) peaking debt costs; and (3) well managed balance sheets, with asset book values more stable but gearing still at the top end of target ranges.”
Contact Energy was this week given the green light from the Commerce Commission to merge with Manawa under a $1.86 billion scheme of arrangement.
In February, Manawa said it expected lower earnings as a result of the very dry hydrological conditions combined with wind volumes acquired through power purchase agreements being materially lower than the long-term average, and elevated spot and forward electricity prices.
It now expects normalised earnings before interest, tax, depreciation, amortisation and financial instruments of between $80 million and $95m, down from a previous guidance of $95m to $115m.
While Commerce Commission approval is in the bag, remaining hurdles for the merger include support from the independent expert and approval from Manawa shareholders.
“The main obstacle has cleared, and the acquisition is now highly likely to succeed, given directors and major shareholders already support the deal,” research group Morningstar said in a report.
The offer comprises 0.5719 Contact shares plus $1.16 in cash for each Manawa share, valuing Manawa at $6.00 per share based on Morningstar’s current fair value estimate for Contact.
“The acquisition price is fair, and we think the offer is attractive because Manawa shareholders will gain ownership of a larger, more diversified, and lower-risk business.”
The takeover requires 75% of Manawa shareholders to vote in favour.
Major shareholders Infratil and Tect own 78% of Manawa and are supportive.
“Thus, we expect the vote to succeed.”
There’s some relief in the market that FPH’s Mexican manufacturing operation will not be subject to the 25% tax as put forward by US President Donald Trump, but it will still have to contend with a 10% tariff on all products made in New Zealand.
In early March, the US enacted a 25% tariff on products imported from Mexico that were not compliant with the US-Mexico-Canada Agreement (USMCA).
But it turns out that almost all FPH’s products imported into the US from Mexico are currently USMCA-compliant.
FPH makes about 45% of its volume in Mexico and 55% in New Zealand, and for the first half of the 2025 financial year, 43% of the company’s revenue came from the US.
Craigs Investment Partners portfolio manager Mohandeep Singh said manufacturers worldwide will be anxious to see how the whole new US tariff regime will play out over the long run.
“Until there’s some sort of signal that this is a structural tariff that’s here to stay forever, and that this is the new world regardless of who’s in power in the US, then I think you might see FPH and other manufacturing companies look to make longer-term capital investment decisions,” Singh said.
“I don’t think you’ll find them to be a business that aggressively tries to pass all of that [cost] through.
“They tend to be a management team in a business that takes a longer-term approach.”
While US sanctions will make their presence felt on FPH, there is some relief that it could have been worse.
“I suspect the rhetoric [at this month’s result] will be business as usual, keeping our options open and being flexible,” he said.
The company’s guidance is for a net profit of $320m to $370m.
The market is looking at a net profit of $359m, while Craigs’ forecast is at the upper end of FPH’s forecast range.
Mainfreight put some tariff-related concerns to rest when it updated the market on its earnings.
The logistics firm expects its full-year profit before tax and sales revenues will be above market consensus expectations of $375m and $5.1 billion, respectively.
“The trading backdrop has worsened since the start of the tariff war, but like its non-US-centric global peers, Mainfreight’s geographical spread provides healthy mitigation to US-specific issues,” Forsyth Barr said.
“With earnings growth at a premium over the next 12 months, and global peers trading at or around similar levels, we believe Mainfreight is fairly priced.”
The increased stability and certainty provided by Labor’s resounding victory in the Australian Federal election has been well received by the market, says Robbie Urquhart, senior portfolio manager – Australian Equities – at Fisher Funds.
Labor is expected to be more effective at prosecuting its major policy initiatives than in the previous term, he said.
“Potential ‘winners’ from this policy agenda include healthcare [diagnostics] as spending goes up; housing, as Labor spends on increasing the supply of new homes; and renewables and clean energy, including electric vehicles, as subsidies are increased.”
Losers possibly include people with superannuation balances exceeding $3m, as Labor doubles the tax on large balances.
How consumers react to this will be interesting to watch, Urquhart says.
Industrial relations were also a big election issue, with Labor planning more reforms to elevate worker rights.
“Lastly, Australia’s AAA sovereign credit rating could be at risk given Labor’s high spending plans, so cost efficiencies will likely need to be found,” he said.
“For New Zealand, it is instructive to see the business community in Australia cheer for a political party with a clear mandate to govern and the policy clarity that stems from that – it enables corporate Australia to plan effectively.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
Mercury, Meridian and Manawa are likely to be hit hardest by the earlier drought.