Earnings were mixed for most of the listed public companies
in 2011 who announced their results in the latest reporting
season, but many were cautiously optimistic about their
prospects for the year ahead, brokers First NZ Capital said.

Of the 26 reporting companies that First NZ covered, eight
came in above the brokers’ expectations, nine were in line,
while nine were below, First NZ said in a review of the
season.

A number of companies reported a worsening in global market
conditions, particularly in Europe, with their earnings
affected by a weaker global economy and higher fuel prices.

Firms also noted a softening in earnings reflecting exposure
to a weaker Australian economy, which had come under
additional pressure from a strong Australian dollar.

Companies generally reported a backdrop of a relatively muted
New Zealand recovery with a number of firms noting the
current challenging domestic economic conditions and low
credit growth environment, with some continuing to focus on
cost savings.

“A broad-based recovery in the building sector remains
elusive for now, although there are initial signs that the
Christchurch rebuild is gaining some momentum, albeit at a
slower pace than anticipated,” First NZ said.

“The recent pick up in activity in the New Zealand rural
sector, together with the Canterbury rebuild, is expected to
underpin an improvement in growth rates over the year
ahead,” it said.

The key domestic risk appeared to reflect residual
uncertainty regarding the pace and timing of the Canterbury
earthquake rebuild.

On balance, the “outlook” comments from management were
cautiously positive, albeit set against the current subdued
domestic activity profile, First NZ said.

Of the 26 companies covered in First NZ’s review, analysts
upgraded estimates for 8 companies, downgraded 8 firms, while
10 were left broadly unchanged.

The best results, going on the individual share’s price
reaction to their results, came from NZX, Hellaby Holdings,
Diligent Board Member Services, Tourism Holdings and Opus
International Consultants, although First NZ said these were
predominantly small cap companies, with limited liquidity and
analyst coverage.

In contrast, the largest negative reactions come from
Guinness Peat Group, Mainfreight and Air New Zealand.

“While a number of firms have exceeded expectations, the
backdrop over the past six months of a muted domestic growth
profile, heightened global growth concerns, together with
delays in the Canterbury rebuild have provided a number of
companies with a challenging earnings environment,” First NZ
said.

Companies remained highly conscious of the potential negative
impact from a weakening in global growth, continued softness
in the Australian building sector, the potential for further
delays to the Canterbury rebuild, together with headwinds to
exports from an elevated NZ dollar.

Matt Goodson, portfolio manager at BT Funds Management,
agreed the season had been a mixed bag, but said “potentially
this could be as bad as it gets”.

Campbell Stuart, head of equities at UBS, said the mood of he
market remained tentative.

“Most people, having had three years of torrid stuff, are not
prepared to paint a picture that is anything more than
cautious, and I think that is pretty sensible,” Stuart said.
“Everyone is cautious these days.”

The NZ equity market performance over the reporting season
has been broadly flat, with the NZX50 index recording a
slight decline.

This was contrary to a more robust performance of global
equity markets over the same period,

which have rallied on the back of a rise in risk appetite as
global growth momentum has improved and as Euro zone tails
risks have receded somewhat following the European Central
Bank undertaking another big liquidity injection.