In today's edition:
• Mainfreight's hard yards
• Guidance key for A2 Milk
• Vista Group's big day
Mainfreight is the latest company to indicate softness in the domestic economy.
While its half-year profit was up nearly 12 per cent to $62.2 million, chief executive Don Braid has said both its New Zealand and Australian operations have had to contend with slowing economic conditions and increased labour costs.
Castle Point fund manager Stephen Bennie said the annual general meeting season in New Zealand had involved a pretty continuous series of lowered earnings expectations.
"Mainfreight this week being the most recent to indicate slowing in the domestic economy."
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While Bennie said there was nothing really dramatically surprising in that, the bigger surprise was that the updates were not leading to lower share prices.
"In a normal market environment, these AGM updates would lead to weaker share prices as the market responded to earnings downgrades."
But the falling interest rate environment means stock markets are still being pushed upwards.
Jarden analyst Andrew Steele said in a note while the Mainfreight result was lower than its expectations it was still a solid result.
He upgraded the target price for the company from $30.10 to $31.60 but retains an underperform rating on the stock because of its high valuation.
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Mainfreight shares are up more than 30 per cent over the past year and closed up 3.5 per cent at $41.92 yesterday.
A2 guidance wanted
Analysts will be hoping to get some guidance from A2 Milk at its annual general meeting on Tuesday as to whether they are on track with forecasts.
The company's share price has taken a hit since reaching a high in July after revealing a profit that was lower than the market expected on the back of higher investment into marketing which put a squeeze on its margins.
Despite its net profit rising 47 per cent leap to a record $287.7 million for the June year, its shares fell sharply. The consensus of market expectations had been for a net profit of $297m.
While its share price is up over 25 per cent over the past year it has fallen from around $18 at the end of July to around $12 a share.
Sam Dickie, senior portfolio manager at Fisher Funds, said A2 Milk chief executive Jayne Hrdlicka had indicated at its strategy investor day in September she was comfortable with consensus forecasts for the company and all eyes would be on whether she reiterated that or if there was any change.
"We will be watching it intently."
A2 Milk is expected to give a trading update on its first four months of its financial year and Dickie said there could be more detail than in the past.
"Given the acid put on them they may give more flavour than they normally do."
While it won't be part of the trading update, A2 is also said to have done well out of the latest Singles Day sale in China with Alibaba reporting it was the eighth most popular brand imported on its website.
The one-day discount sale, which takes place on November 11, is based on an unofficial holiday celebrating singledom in China and has now turned into a major e-commerce event.
The AFR reported that JD.com, another online retail platform, said A2 increased its sales by 2.5 time year on year this year.
While that's only one day of sales, it gives an indication of how popular the company's products are in China.
Market expectations are that A2's profit will continue to come under pressure over the next one to two years as its spends more to make its brand stand out in China and the US.
Dickie says that expectation has already been priced into the stock but he is more upbeat about its longer-term prospects in the wake of the marketing uplift.
"I am convinced they will be able to harvest more in years three to 10."
He said it was myopic to focus on just the short-term impact.
A2 Milk shares closed up 1 per cent at $12.73 yesterday.
Investors and analysts have been invited to a briefing for Vista Group on Monday which is promising to deliver more information on its market, a previously announced move to shift its software to the cloud and an update on Movio - its tool which provides analytics on the film industry.
It's a welcome move after the company's half year result disappointed investors with a reduction in revenue guidance from in the region of a 20 per cent lift to 10 to 12 per cent in August.
That saw market analysts downgrade expected earnings not just because of the lower than expected revenue and higher costs but also because of concerns that an acceleration of investment to transform the Vista Cinema platform to a software as a service platform would see margins decline.
Tama Willis, portfolio manager at Devon Funds Management, said investors would be looking for comfort that the business is tracking to guidance for 2019, an update on progress towards consolidating Vista China and more detail on the transition to a SaaS model.
"If Vista management can give comfort on these key areas we see a recovery in investor sentiment."
Vista shares are up 7 per cent over the past year but have fallen from $6.20 at the end of July to just over $4 a share.
Willis said a key focus at the investor day would be on how the cloud transition would affect the profit and loss in Vista Cinema, Movio and Vista China.
"We see relatively limited technical execution risk from the Vista Cloud/SaaS transition because significant parts of the Vista Cinema system are already on the cloud and there are only modest changes to the core operating system."
He said Vista's global market share in cinema software (for exhibition companies with more than 20 screens) outside of China was now about 50 per cent.
"We see material upside over time."
Vista shares closed down 1.25 per cent at $4 yesterday.