New Zealand corporate earnings may fall short of investors' expectations with the reporting season for June balance dates bearing down next month.
Locally-listed companies' valuations may start coming off the boil as the price-to-earnings ratio gets ahead of profits, and investors may be disappointed when firms publish their results next month, AMP Capital Investors (New Zealand) head of equities Guy Elliffe told a media briefing in Wellington.
"There's a risk of PE contraction again as investors start to factor in lower earnings growth into their forecasts," Elliffe said. "There's a general challenge to earnings growth meeting expectations. Having said that, we're not in any sort of bubble, we're just in a little consolidating period where earnings have to catch up with PEs."
Among firms to issue profit warnings so far are transport and logistics firm Freightways, food ingredients maker Goodman Fielder, clothing chain Hallenstein Glasson, carpet maker Cavalier Corp, and lender Heartland New Zealand.
"There's nothing horribly alarming going on, but I just think on the margin it's going to be challenging for companies," Elliffe said.
The pressure on company earnings will likely be across the board, though firms with exposure to the currency, which is in a downtrend, are probably in a "sweet spot," he said.
Keith Poore, AMP Capital's head of investment strategy, said the fund manager expects the currency will stay above fair value, which is closer to 70 US cents, over the next few years. The kiwi recently traded at 78.12 US cents.
Elliffe said gains in the local market had been driven by expensive stocks with high prices relative to earnings, and he expects some of that "frothiness" to come off. Stocks are trading at around 15 times expected earnings, compared to about 13 times a year ago.
"Some of the optimism the market's about some of these more high-growth stocks is getting a little bit over-extended," he said.
The Wellington-based fund manager's NZ shares (average) sector funds made a loss of 2.5 percent in the June quarter, paring an annual gain of 28 percent. The benchmark NZX 50 index eked out a 0.4 percent gain in the June quarter to 4440.17. It was down 0.3 percent to 4594.48 in afternoon trading today.
Elliffe said the falling MightyRiverPower share price since its float will make it challenging for the next government partial privatisation, and that there are still digestion issues with a heavy line of companies looking to list this year.
MRP rose 0.4 percent to $2.41 today, and has gained about 3 percent since the NZX said it will join the top 50 index later this month. The stock closed as low as $2.20 in June, after listing in May.