Earnings cont. | The case for a harder landing

28 August 2023

NZ and Aussie earnings continue

Vector –FY23 result at top-end of guidance range. Surprise 5.5cps special dividend. FY24 EBITDA (pre-capital contribution) guidance is $350-365m. Preference for exposure to the sector remains IFT and GNE.

Port of Tauranga — Cargo trends have deteriorated and are likely to remain subdued through FY24. Shipping ‘logistics’ boom is starting to slow…hard to value POT at the multiples it commands here.

A good turnaround at NZME – some near-term headwinds (reduced ad spend, OneRoof’s need to still prove itself) but their NZ Herald business is impressive — they have built up a good amount of subs and it now “works”. Expecting $58mn of FY EBITDA. A mixed earnings season so far. No big surprises, a lot of “business as usual”. We’re not surprised to see deceleration across the board — increased costs and slowing demand the culprit, in general.


Macro

Let’s set the stage. The majority of fund managers are factoring in a “soft landing” scenario. The same majority expect US GDP to be 6% at ‘24 and earnings growth to be 12%. That’s a lot of assumptions, and if any of those prove to be wrong it would reflect a bearish event for stocks.

A few other pieces of data. We’re not expressing a view either way. But, for the sake of consideration, take US home mortgage applications. They are down.

On the other hand, the 30 yr mortgage rate is sitting at highs not seen since pre-2000.

US durable goods orders also look a little weak — after a flurry of demand, it looks like things have begun to sequentially decline — we need more data on this, though.

What we’re looking for is 1) cyclical slow-down (look at our own NZ cyclicals for example — POT seeing slow-down in containers, Freightways seeing slow-down in shipments, etc). 2) Continued fiscal tightening (reflected in real terms by the 30 yr mortgage rate) and 3) drag from foreign demand (we’ve seen this as well, with Nike, Estee Lauder’s lagging Asian sales, etc).

This may end up being a recipe for a weaker economic scenario than expected. A “soft landing” may be less likely than anticipated. We’re watching the indicators closely.

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