The New Zealand sharemarket has been facing some significant challenges in recent times, causing stocks to lose ground and investors to remain cautious. High interest rates and modest earnings expectations have contributed to the cautious sentiment among market participants. However, amidst this challenging environment, Skellerup, a leading New Zealand company, seems to be defying the odds by continuously achieving remarkable earnings growth.
High Interest Rates Put Pressure on Stocks
One of the main factors that have been weighing on the New Zealand sharemarket is the high interest rate environment. The Reserve Bank of New Zealand (RBNZ) has been keeping the official cash rate (OCR) at 1.75% since November 2023, in order to control inflationary pressures and support economic growth. However, this has also made borrowing more expensive for businesses and consumers, reducing their spending and investment activities.
High interest rates also make stocks less attractive compared to other assets, such as bonds and cash. Investors tend to demand higher returns from stocks when interest rates are high, which lowers their valuations. Moreover, high interest rates can negatively affect the earnings of companies that rely on debt financing or have high operating costs.
The S&P/NZX50 index, a key indicator of the New Zealand sharemarket’s performance, closed at 10,884.040, down 76.583 points or 0.7%. This decline reflects the overall bearish sentiment prevailing in the market. Investors are cautious due to concerns over interest rates, which have been kept high to control inflationary pressures.
Modest Earnings Growth Limits Upside Potential
Another factor that has been limiting the upside potential of the New Zealand sharemarket is the modest earnings growth of many companies. The earnings season for the September quarter has been mixed, with some companies reporting strong results while others disappointing the market.
According to a report by Forsyth Barr, the aggregate earnings per share (EPS) growth for the S&P/NZX50 index was 3.6% for the September quarter, slightly below the long-term average of 4%. However, this growth was largely driven by a few companies that performed exceptionally well, such as Skellerup, Mainfreight, and Fisher & Paykel Healthcare. The report also noted that the earnings outlook for the next 12 months was subdued, with an expected EPS growth of only 2.9%.
The modest earnings growth of many companies reflects the challenging economic conditions that they are facing, such as rising costs, competitive pressures, and regulatory uncertainties. Some sectors that have been particularly affected include retail, tourism, and energy. These sectors have also seen their share prices decline significantly over the past year.
Skellerup Defies the Odds with Record Earnings
Despite the wider market struggles, Skellerup stands out as a shining example of resilience and adaptability. The company’s commitment to innovation, coupled with its focus on meeting customer needs, has allowed it to thrive in a challenging economic landscape.
Skellerup is a leading New Zealand company that provides industrial solutions for various sectors, such as agriculture, mining, construction, and healthcare. The company has a diversified portfolio of products and services, ranging from rubber products and vacuum pumps to footwear and medical devices.
Skellerup reported a record net profit after tax of $32.8 million for the year ended June 2023, up 23% from the previous year. The company also increased its revenue by 9% to $292.7 million, driven by strong demand from its industrial and agri divisions. The company’s earnings per share (EPS) rose by 22% to 16.4 cents, while its dividend per share (DPS) increased by 17% to 11 cents.
The company’s impressive performance was attributed to its continuous investment in research and development (R&D), product innovation, and customer service. The company also benefited from its exposure to global markets, especially in North America and Europe, where it saw robust growth in its industrial segment.
Skellerup’s chief executive David Mair said that the company was well-positioned for future growth, as it had a strong pipeline of new products and opportunities in both existing and new markets. He also said that the company was confident of achieving another year of record earnings in 2024.
Conclusion
The New Zealand sharemarket has been facing some significant challenges in recent times, due to high interest rates and modest earnings growth. However, Skellerup has shown that it is possible to overcome these challenges by staying agile and proactive, even during difficult times. By continually evaluating its strategies and adapting to market conditions, Skellerup has achieved remarkable earnings growth and created value for its shareholders.
