Results season conundrums
By Murray Brown, Senior Portfolio Manager, New Zealand
05 September, 2016
Now that the dust has settled on the June profit results season, it is a good time to reflect on the surprises from our New Zealand companies, good and bad. As always, we use our STEEPP criteria to re-evaluate our portfolio companies post-results, to see if our view is materially changed.
Overall, the results season was very satisfactory but as always, there were things that surprised us at the margin. The standout results for us were Summerset, Michael Hill International, Trade Me and EBOS. All recorded solid share price gains post the results after reporting strong earnings growth.
Summerset has been a star performer in the New Zealand portfolios for some time and its half year result in August did not disappoint. Often when a share price runs up before a result, it will flatten off or fall when the company actually reports its results (reality sets in). In the case of Summerset, the share price ran up 7% in the week before its results and lifted another 10% in the week following! We have been delighted with our investment, which we first bought when the company listed in 2011.
The only negative surprise (in terms of share price movement) was Vista Group which fell 7% on the day it announced its results. In this case, a bit of context is required. The Vista share price had risen 8% in the two weeks leading up to the result, so it just fell back to where it was. Did the result itself disappoint us? No, the result confirmed to us that the company has many years of growth ahead of it, and in fact we added to our investment once we had fully critiqued the result. We feel that using ‘STEEPP’ and taking a three to five year time horizon is a good discipline in not getting caught up in the result ‘hype’ and end up making emotive decisions that we may regret later.