Monday, July 7, 2008

August reporting season will give investors a true barometer of company health


The Kiwi stockmarket is down markedly off its highs last year but the real test or indicator of company health and capital value lies in real results and an indication of the future prosperity or otherwise of the company that you have invested your hard earned dollars in.

Gather 'round investors! Reporting season is the moment of truth.

The New Zealand reporting season kicks off in August and regardless of the Credit Crunch and its fallout, record high energy prices, a bursting housing bubble and high food costs for consumers, financial results and future indication of direction are still the main indicators of company health and a company's possible day to day market value.

The slowing economy and its fallout is expected to vary widely impact wise on Kiwi companies. Of our top 30 stocks reporting, 10 were indicative of their respective fields: Auckland International Airport [AIA ] Briscoe Group [BGR] Telecom [TEL] Freightways [FRE] Fletcher Building [FBU] Goodman Fielder [GFF] Contact Energy[CEN] Tourism Holdings[THL] PGG Wrightson[PGG] and The Warehouse[WHS].

Both Briscoe Group and The Warehouse have warned of lower profits over the last week

Many companies have already indicated profit warnings, Hallenstein Glassons[HLG] and Postie Plus(PPG) have come to the table, while many companies have indicated flat earnings, The Warehouse, Telecom, Contact Energy, Sky City Entertainment[SKC] Pumpkin Patch(PPL) and Freightways have all indicated pressure on margins over the past year.

The pressure has come mainly from government intervention, with some of the obvious fuel, interest and food cost increases not helping. Increased labour costs through a higher minimum wage, 1 week extra holiday and paid maternity leave have all pressured businesses and margins. The recent increases of diesel and road user taxes by government have pushed the cost envelope to bursting. Clearly those companies with very high staff numbers will be affected by this, retailers especially.

In addition to the above, more Government associated paperwork for administration staff has lead to lower productivity.

More Government pressure from reckless spending has led to higher interest rates, for consumers and lending for business, and the increases in energy costs, due to Government dictated taxes on petrol and electricity have made 2008 a bad year and are due to get considerably worse in 2009, even under a new government.

There maybe some surprises on the upside during the current reporting season.

Sky City is likely to be one of the better performers this reporting season as economic downturns don't usually affect gaming businesses as much as retailers or infrastructure companies, like Contact Energy. Sky's Cinema business is going to have an awful result though.

Mainfreight[MFT] looks like a good bet to increase profit and Restaurant Brands[RBD], the often talked about whipping boy here should show an increase from a very low comparison this time last year.

This reporting season seems like a turning point for investors to me.

They must make up their minds whether they want to hold their investments during a coming hard year or run crying for the hills with their share proceeds in their hands.

Fortune will favour those who hang on to good companies and if you are buying shares for the first time or adding to your portfolio, look for good management first before anything else, for it is good managers with a track record that will be able to ride out the inevitable tough times.

I'm ready to face the coming months, good or bad, and reporting season is definitely going to give investors a clearer indication of exactly where their companies and therefore investments are going.

There is too much panic at the moment and decisions to sell by some who already want to should be put off after they hear company announcements this coming August.

Disclosure I own WHS, PPL, PPG, FBU, FRE, SKC, HLG, GFF and AIA shares

The economy looks bad now? But wait there's more!
The Warehouse set for a turbulent 2008
New Zealand Stockmarket set for a discontent Winter and Summer

c Share Investor 2008