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6/6/2018 — General
Mixed feelings on mixed reporting results
By Simon Hartley

Despite many positive listed company results in the NZX's latest reporting season, investors took exception and punished some stocks, sending a few share prices tumbling.

Even sharemarket darling A2 Milk, the NZX's largest company by market capitalisation, was not immune to the sour investor sentiment.

Craigs Investment Partners broker Peter McIntrye said a feature of the past month was the market reaction to results from some growth businesses.

“The A2 Milk Co was the highest profile of these, with the share price falling almost 14% on the day a third quarter update was released,” he said.

However, A2 wasn't the only company “to suffer at the hands of demanding investors'', with PushPay, Gentrack and Fisher & Paykel Healthcare all treated similarly, albeit to a lesser extent.

“The answer is simply investor expectations got ahead of themselves,” McIntyre said. Despite plenty of good news, the market had become “a little too excited and wanted more.”

McIntyre said the lesson for investors was that growth companies could be volatile, even when hitting their targets, especially if investors become overly optimistic and set the “unofficial bar” too high.

“Casual observers could be forgiven for being somewhat puzzled by this, especially as the headlines in all of these company updates made for fairly upbeat reading,” he said.

A2 reported its group sales were up 70% on a year ago and noted revenue for 2018 would be in a range of $900 million and $920 M.

“The comparable number in 2017 was $550 M, so that's a phenomenal uplift.”

Fisher & Paykel Healthcare reported a record profit for fiscal 2018, about 12% up on last year. PushPay talked about another strong year of growth, with total revenue more than doubling and gross margins expected to improve from 55% to more than 60%, he said.

Gentrack delivered a result at the top of its guidance range, with net profit up 50% on a year ago, with some growth due to acquisitions, though the outcome was still impressive.

“None of that sounds particularly gloomy, in fact it’s all quite the opposite.”

On balance, there were certainly more positive stories than bad. Markets would now look ahead to the busier August reporting period, and the preceding “confession season” in July.

On the negative side of the ledger, Steel & Tube and Fonterra were lowlights.

Steel & Tube downgraded its earnings estimates, breached debt covenants and might have to suspend dividends for a period, he said. Fonterra did the right thing by its farmer suppliers, raising the farm gate milk price forecast, but this appeared to come at the expense of Fonterra unit shareholders, who will see lower earnings and dividends, he said.

Other reporting season highlights were strong results from blue chip companies Ryman Healthcare and Mainfreight.

“Both have managed to create a long and enviable track record of growing earnings and dividends with remarkable consistency,” McIntyre said.

He said some investors bemoan the fact their stock always looks expensive and find it difficult to justify paying for them.

“However, for long-term investors it’s hard to see these types of companies being anything other than great investments for many years to come,” he added.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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Peter McIntyre.