Sluggish growth hits South Island-listed companies

South Island companies have not fared well in the past year, experiencing the smallest yearly growth in three years.

The Deloitte South Island Index, which tracks the quarterly performance of South Island-based listed companies, gained just 0.8% – $96.4 million – market capitalisation in the year to March 31.

There was a 0.2% drop in the most recent quarter, the index’s third quarterly decline in the past four quarters.

Before that there had been a run of seven consecutive positive quarters but this year's slump saw 18 of the 31 companies in the index making a loss during the 12 months.

The worst performer was Kathmandu Holdings [NZX:KMD], which dropped 64%, or $493.8 million, in market capitalisation over the year. The outdoor goods retailer’s shares slumped 19% to a two-and-a-half year low in February after it reported a loss from disappointing Christmas and January trading.

Dunedin-based bladder cancer test maker Pacific Edge [NZX:PEB] also performed poorly on the stock exchange, dropping 43% or $184.8 million in market capitalisation, after posting a loss.

Synlait Milk [NZX:SML] struggled with its share price during a year which was tough on the dairy industry, dropping 20.6% or $111.3 million.

The three largest companies on the index – Ryman Healthcare [NZX:RYM], Meridian Energy [NZX:MEL] and EBOS Group [NZX:EBO] – collectively plumped up the index by 9.8%, but individual results were mixed.

Meridian Energy stood out from the crowd after gaining $1,085 million (74.6%) in market capitalisation over the year. The partially-privatised power company beat its prospectus forecasts and its share prices received a boost after any immediate regulatory fears were removed because there was no change in government.

But Ryman decreased by 10.4% or $455.0 million – a turnaround from its previous run of almost tripling market capitalisation over the two years before.

Healthcare and animal care products company  EBOS Group gained 5.9%, or $89.2 million, forecasting a record profit for this year.

Look at smaller caps, investors
Deloitte corporate finance partner Scott McClay encourages investors to look outside these three largest companies and support smaller-cap South Island companies.  

“It would be heartening to see investors looking to consistently support more of the companies outside of the top three.

“The smaller companies on the index have shown promising pockets of positive performance in recent years but have suffered from lower publicity and investor interest.

These include Heartland Bank [NZX:HNZ], which increased 63% or $232.1 million after 12 consecutive quarterly gains. The company boosted profit and received credit ratings upgrades from Fitch Ratings and Standard & Poor's, and invested into peer-to-peer lender Harmoney last year.  

Mr McClay warns the index may not perform in future as strongly as it has over the past three years, as global economic factors are expected to influence the New Zealand dollar and the performance of many South Island companies.

The energy and mining sector performed the best – although if Meridian’s results were removed it would have done the worst.

The South Island index’s annual growth was outperformed by all comparator indices, after the NZX 50 Capital Index increased by 8.6%, the ASX All Ords increased by 8.5% and the Dow Jones increased by 8%.