Market News – 5 October 2026

Edward Lee Writes:

Lodestone Energy’s public share offer opened last week, giving investors an opportunity to invest in a growing New Zealand electricity business with five operating solar farms, another under construction and plans for substantial expansion.

The company is seeking between $75 million and $100 million at $2.25 per share. The offer will close on 14 October, with trading on the NZX expected to begin on 22 October under the code LOD. Depending on the amount raised, Lodestone will have a market value of approximately $440 million to $465 million. Existing shareholders are not selling through the offer, so the capital raised will remain in the business to fund its development.

We believe Lodestone is worth considering for clients seeking long term capital growth within a diversified portfolio. The attraction is the combination of existing generation, further solar farm development and the opportunity to earn more from its electricity by selling directly to a larger customer base.

Management is targeting nine operating solar farms by FY29 and 16–18 by FY32, compared with five today. Energy revenue is forecast to increase from $25.1 million in FY26 to between $169 million and $195 million by FY32. These are ambitious targets, but they explain why we see Lodestone as an interesting potential growth investment.

Building those farms will require considerably more funding than the IPO alone provides. The wider programme is expected to be financed through debt, strategic partners, existing cash and cash generated by the business.

If the full $100 million is raised, management expects its funding plan to support development through FY32, when it expects to generate sustainable free cash flow after capital spending and debt repayments. This depends on the business performing as planned and continued access to those funding sources.

The retail business is an important part of the investment case. Lodestone already supplies commercial and industrial customers under long term agreements and has begun selling electricity to households and small businesses in Hawke’s Bay. By FY32, it expects around 65% of the electricity it sells to be through its mass market retail business, where it anticipates earning better margins.

This also helps address one of solar generation’s commercial risks. When sunshine is plentiful, solar farms tend to produce electricity at the same time, potentially depressing wholesale prices during those hours. 

Selling directly to customers can reduce some of that exposure, although Lodestone will still need to manage the difference between when its farms generate electricity and when customers use it.

We continue to like the longer term outlook for renewable electricity. Lodestone has already demonstrated that it can build and operate solar farms. Its next task is to repeat that across a larger portfolio while attracting enough customers to deliver the earnings it is targeting.

The outcome will depend on construction costs, retail growth, the debt required to finance expansion and any changes to the number of shares on issue.

Investors also need to accept the expected wait for income. Lodestone does not anticipate paying dividends before FY32, as available cash will support its development programme. 

For clients who can invest over that period without relying on dividends, we believe the potential growth warrants consideration, with an allocation that recognises the construction, funding and retail risks.

We have written a research piece examining Lodestone’s growth plans, funding, valuation and risks. Our advised clients can request a copy from us or view it in the private area of our website. Clients interested in the offer are welcome to contact us to discuss whether it suits their portfolios.

Hallenstein Glasson

Hallenstein Glasson delivered another strong result last week, with annual net profit rising almost 50% to $59.2 million. Glassons Australia continued to lead the expansion, although its New Zealand business and Hallensteins also increased sales.

The company sold more clothing at full price, helping improve its margins. Better purchasing and freight arrangements also contributed, allowing more of the sales growth to flow through to profit. A stronger Australian dollar provided a further benefit when Australian sales were translated into New Zealand dollars, although the business still achieved substantial growth after removing that currency effect.

Hallenstein Glasson has traditionally attracted investors for its dividend income and currently offers an indicative gross dividend yield of just 5.80%. In our view, the investment case at this level relies increasingly on further earnings and dividend growth.

Trading has remained strong, with sales in the opening eight weeks of the new financial year up 18.4% after allowing for exchange rate movements. However, directors explicitly said they do not expect that pace to continue through the remainder of the first half. They also highlighted uncertainty around consumer spending, exchange rates, freight and other costs, with the important Black Friday and Christmas trading periods still ahead.

We regard this as a well-run retailer producing an excellent result, but investors should be careful about projecting the latest growth too far into the future. Maintaining a higher level of profitability requires customers to keep buying its ranges with relatively little discounting. If spending weakens or more stock needs to be marked down, margins could come under pressure. The stronger Australian dollar has helped this year, but that benefit can also reverse.

For existing shareholders, the growth in earnings and dividends is welcome. For anyone considering buying today, the question is whether the price leaves enough room for a worthwhile return if growth moderates, as management expects. 

Investors who would like to discuss Hallenstein Glasson and its place in their portfolio are welcome to call us.

The Warehouse Group

The Warehouse Group’s result illustrates how much difference margins and costs make to a retailer’s earnings. It generated approximately $3 billion in annual revenue, compared with Hallenstein Glasson’s $563 million, yet reported a net profit after tax of just $11.2 million against Hallenstein Glasson’s $59.2 million. 

With less than one fifth of The Warehouse Group’s revenue, Hallenstein Glasson produced more than five times its profit.

The businesses sell different products and operate with different margins, so we would not expect identical returns. Nevertheless, the comparison shows how little of The Warehouse Group’s substantial sales currently reaches shareholders as profit. Hallenstein Glasson retained roughly $10.50 in net profit from every $100 of revenue, compared with around 37 cents at The Warehouse Group.

There was still plenty to welcome in The Warehouse’s result. Gross margins improved and operating costs fell by almost $30 million, helping adjusted operating profit recover to $22.6 million from just $1.3 million. Better buying, stock management and more sales at full price contributed to that improvement.

The reduction in net debt was particularly pleasing. It fell from $96.1 million to $17 million, leaving the group with very little net borrowing relative to its size. That gives management more room to invest in stores and improve the business, and strengthens the case for resuming dividends.

We expect dividends to be reinstated at the next result, provided trading and cash generation continue to support a payment. This is our expectation, rather than a commitment from the company, and a resumption could help support the share price by restoring some appeal to income investors.

The Warehouse still has a long way to go. Noel Leeming and Warehouse Stationery delivered improved earnings, but the red sheds remained loss-making after allocated support office costs. Returning that business to sustained profitability is essential if the group is to deliver the returns shareholders should expect from its sales base.

Our ambition for The Warehouse Group would be a return to annual net profits of $50 million to $100 million and would require a substantial further improvement. The latest result shows the business heading in the right direction, with better margins, lower costs and sharply reduced debt. Management now needs to build on those gains and turn more of its revenue into lasting profit.

New Investment Opportunities

Lodestone Energy 

Lodestone Energy has confirmed that the IPO price is $2.25 per share.

Lodestone owns a portfolio of five solar farms across New Zealand, with plans to build another 10 solar farms using the funds raised from this IPO, essentially tripling the size of the business over the next 5-years.

The company is seeking to raise between $75 million and $100 million, with no existing shareholders selling shares as part of the IPO. The new capital will be used to support Lodestone’s continued expansion across New Zealand.

For advised clients, we have prepared a research piece on Lodestone Energy, which is available in the private area of our website. If you would prefer a copy to be emailed to you, please contact us and we would be happy to send it through.

Investors can find the investment statement on our website and if you would like an allocation for these shares, please contact our office with an amount and your CSN and we will send through a contract note .

Contact Energy is expected to issue a new subordinated capital bond in October. We expect the bond to have a term of around 6 years, with a possible interest rate of around 6.00% per annum. 

Investors who are interested in this potential bond are welcome to contact us with their CSN and an indication of the amount they may wish to invest. We will then contact them once the final terms and further details are available.

Travel

Our advisors have an extensive travel schedule coming up over the next quarter, including the following dates:

21 October – Auckland (Albany) – Edward Lee

22 October – Auckland (Ellerslie) – Edward Lee

Chris Lee and Partners Limited