Market News – 31 August 2026

Edward Lee writes:

The final week of August produced one of the busiest periods of the New Zealand reporting season, with results from Port of Tauranga, Genesis Energy, Summerset, Air New Zealand, Sky Television and Channel Infrastructure, alongside a particularly strong trading update from Hallenstein Glasson.

The overall picture was better than the headlines around the New Zealand economy might suggest. Several companies are producing higher earnings and cash flow despite weak economic growth, while others are beginning to benefit from cost reductions, stronger pricing and investment undertaken over recent years.

Port of Tauranga

Port of Tauranga produced one of the stronger results of the reporting season, with underlying net profit increasing 23% to a record $155 million.

Revenue increased 4.7% to $486 million and operating earnings increased 17.6% to $275 million. What makes the result particularly impressive is that it was achieved despite total trade volumes falling 3% to 24.6 million tonnes, and container volumes flat.

The improvement therefore did not come from a booming economy or rapidly increasing freight volumes. Instead, Port of Tauranga benefited from better pricing, productivity and cost control, with operating costs falling 6.2%.

Shareholders are also receiving more of the benefit. The full-year ordinary dividend increased 22.8% to 20.5 cents per share, including a final dividend of 12.5 cents.

Importantly, management expects further growth. Subject to trading conditions, underlying earnings for FY27 are forecast at between $160 million and $175 million.

Our view is that Port of Tauranga continues to demonstrate why high-quality infrastructure assets can perform well even when the economy around them is relatively subdued. The ability to increase earnings materially while volumes decline is particularly encouraging. If New Zealand export and import volumes eventually recover, the operational improvements made over the past few years should provide additional leverage.

Genesis Energy

Genesis Energy delivered a good result, with normalised operating earnings increasing 11% to $522 million and gross margin increasing 10% to $949 million. Operating free cash flow was particularly strong, increasing 24% to $322 million.

We like the way Genesis is transitioning. Management has set out a credible plan to progressively reshape the company, invest in new renewable generation and storage, strengthen the balance sheet and retain the flexibility provided by Huntly.

The company has completed its $400 million equity raising, reducing net debt, and is now embarking on approximately $3 billion of investment over five years.

This includes solar farms at Tihori and Leeston, the 271 MW Rangiriri solar project, the consented 220 MW Foxton solar farm and further wind development. The first 100 MW/200 MWh stage of the Huntly battery is being commissioned, while a second equivalent stage has reached final investment decision.

Importantly for shareholders, Genesis also continues to provide a strong income return. At current prices, the shares offer a gross dividend yield of approximately 7.70%, which remains attractive for an electricity company with a substantial investment programme and improving longer-term growth prospects.

Genesis has also been leading the electricity generators in terms of share price performance over the past 12 months. We think that reflects growing recognition that the company is no longer simply the owner of an ageing thermal generation portfolio. It is progressively becoming a more diversified electricity business, combining renewable generation, battery storage, retail customers and the strategic value of Huntly.

We like the management plan and believe the transition is heading in the right direction. New Zealand will require considerably more electricity generation as the economy electrifies. Genesis is investing directly into that demand while maintaining a strong dividend for shareholders.

Summerset

Summerset's result requires slightly more interpretation.

IFRS net profit increased 92% to $171 million, although underlying profit fell 3% to $103 million. Revenue increased 16% to $200 million.

The operational numbers were more encouraging. Total sales increased 17% to 813, including a 12% increase in new sales and a 23% increase in resales. Resale stock has fallen to just 2.2% of the portfolio, its lowest level since the first half of 2022.

Cash flow from existing operations increased sharply from $7.9 million to $31 million, although this remains an area management wants to improve further.

Summerset has responded to the economic environment by moderating its development programme. It delivered 481 new homes during the half and remains on track for 700 to 800 for FY26, but intends to hold its medium-term group build rate at around 600 to 700 homes annually.

The company has also increased its New Zealand deferred management fee to 30%, which it estimates will produce approximately $35 million of additional cash flow over five years. It is targeting net debt below $1.9 billion and gearing of 33% by the end of 2027.

We think this is sensible. The long-term demographic case for retirement villages has not changed, but Summerset's greater emphasis on cash generation, development margins and balance sheet management should ultimately create a better business.

Hallenstein Glasson

Hallenstein Glasson produced a standout trading update of the week.

Group sales for the year ended 1 August increased 19.6% to $563 million. Even after removing the benefit of currency movements, sales increased 15.6%.

More importantly, profit has grown considerably faster than sales. The company expects pre-tax profit of between $83 million and $84.5 million, approximately 43.5% higher than the previous year's $58.4 million.

That tells us margins have improved significantly.

The balance sheet remains strong and inventory is described as well controlled, which is important for any fashion retailer. Excess inventory and discounting can destroy margins pretty quickly.

The share price responded accordingly, increasing more than 8% following the announcement.

Sky Television

Sky Television delivered a good result, with underlying revenue increasing 9% to $826 million and operating earnings increasing 6% to $157 million. Underlying net profit increased 2% to $41.8 million.

The final dividend was increased to 17 cents per share, taking the full-year distribution to 32 cents per share, 45% higher than FY25. Sky also intends moving to quarterly dividends during FY27.

Perhaps more important for income investors is what comes next. Sky is targeting dividend growth of 10% per annum over the next three years. It has already indicated a dividend of at least 35 cents per share for FY27.

At the current share price, Sky offers one of the highest gross dividend yields available on the New Zealand sharemarket at 12.50% gross. Further 10% annual increases would make the income proposition increasingly attractive, particularly if earnings and cash generation continue to support those distributions.

The company has also extended its English Premier League rights through to 2034, providing long-term certainty over one of its important sporting assets. Neon now has more than 252,000 subscribers despite losing HBO content, while the acquisition of Three provides Sky with greater scale across free-to-air television, advertising and digital audiences.

Management expects FY27 revenue of between $825 million and $840 million and operating earnings of between $155 million and $165 million.

We like the direction Sky is heading. The business is generating cash, returning more of that cash to shareholders and has provided investors with a clear path towards further dividend growth.

The move to quarterly dividends should also make the shares more attractive to income-focused investors. For investors looking for yield, there are few companies on the NZX currently offering the combination of Sky's starting yield and prospective dividend growth.

If Sky delivers the 10% annual dividend growth it is targeting over the next three years, shareholders could receive a substantial proportion of their investment back through cash distributions alone, before considering any further movement in the share price.

Channel Infrastructure

Channel Infrastructure continues to develop into aninteresting infrastructure company.

First-half revenue increased 4% to $72.9 million and operating earnings increased 1% to $48.8 million. Normalised operating cash flow was $33.6 million, while the interim dividend increased 16% to 7.25 cents per share.

The company also increased FY26 operating earnings guidance to between $103 million and $108 million.

The important development is the continuing conversion of the Marsden Point site into contracted storage and energy infrastructure. New storage agreements are increasing utilisation of existing assets without requiring the company to recreate the risk profile of the former refinery.

The market liked the result, with Channel shares rising nearly 7% on Friday.

We continue to see merit in Channel's strategy. New Zealand's geographical isolation means fuel storage and supply security have strategic value. If Channel can continue securing long-term contracts using infrastructure that is already largely in place, returns on incremental investment could be attractive.

Air New Zealand

Air New Zealand remains one of the weaker investment propositions on the NZX and, in our view, has a significant amount of work ahead of it.

Revenue increased 3.9% to $7.0 billion and passenger revenue increased 4.8% to $6.1 billion, but the airline still reported a pre-tax loss of $336 million.

The external pressures remain substantial. Higher fuel prices reduced the pre-tax result by an estimated $135 million after hedging, fare changes and capacity reductions. Engine availability issues cost approximately $190 million, while maintenance expenses increased by $139 million.

The competitive position also needs attention.

Jetstar continues to build its domestic presence and is increasingly capable of taking market share on price-sensitive routes. At the same time, major international airlines continue to invest heavily in premium cabins, lounges, service and loyalty, raising the standard Air New Zealand must meet if it is to retain higher-value customers.

That is particularly important because Air New Zealand will almost certainly need to keep pushing fares higher.

Engine disruption, maintenance costs, fuel prices, airport landing charges and other aviation system costs are all putting pressure on margins. Air New Zealand disclosed that its share, together with customers, of aviation system charges reached $1.2 billion during FY26, with approximately $720 million recognised as an expense by the airline.

Higher fares can support earnings, but only if customers believe they are receiving sufficient value in return. That places even greater importance on the quality of the product, particularly premium cabins and the Airpoints loyalty programme.

Airpoints remains an important competitive asset, but in our view it still requires considerable refinement. International airlines are becoming more sophisticated in how they reward frequent travellers, recognise status and use loyalty programmes to retain high-value customers. Air New Zealand needs to keep developing its offering if it wants to maintain pricing power and customer loyalty.

The engine problems will eventually ease, but that alone will not solve the wider issues.

Air New Zealand needs to improve its domestic competitive position, continue investing in its premium product, strengthen Airpoints and find a way to absorb a much higher structural cost base without continually asking customers to pay more.

Air New Zealand is an important airline and a strong national brand, but the investment case remains far less attractive than many other opportunities available to investors. Until margins recover, the product improves and the airline demonstrates that it can defend its domestic and premium market positions, we see little reason to change that view.

A useful reporting season

Perhaps the most interesting conclusion from this reporting season is the divergence occurring within the New Zealand sharemarket.

Economic conditions remain difficult, but that has not prevented Hallenstein Glasson from increasing expected pre-tax profit by more than 40%, Port of Tauranga from increasing underlying profit 23%, Genesis from lifting normalised operating earnings 11%, or Channel Infrastructure from increasing its dividend and earnings guidance.

These companies are not relying on strong economic growth. They are improving margins, controlling costs, allocating capital more carefully and, in several cases, strengthening their balance sheets.

That is important for investors.

Sharemarkets normally begin recovering before the economic data looks particularly attractive. If interest rates eventually ease and domestic activity improves, companies that have already strengthened their operations during the difficult period should be well positioned to benefit.

The reporting season therefore reinforces our preference for companies with pricing power, good cash generation, manageable debt and assets that would be difficult or expensive for a competitor to replicate.

We particularly like the direction of Genesis, where management is successfully transitioning the business while continuing to provide shareholders with a strong income return. Sky Television is also becoming increasingly interesting for income investors, particularly if management delivers the 10% annual dividend growth it is targeting.

Air New Zealand sits at the other end of the spectrum. The airline has considerable work ahead of it to restore margins, improve its competitive position and bring its customer proposition closer to what leading international airlines are now offering.

For investors prepared to look beyond the economic headlines, there are increasingly some interesting opportunities emerging on the NZX.

Christchurch Seminar

Following our recent investor seminar at Southward Car Museum in Paraparaumu, we are pleased to confirm that we will be holding our next seminar in Christchurch.

The seminar is open to both existing clients and other investors and will be held at Burnside Bowling Club at 11:00am on Thursday, 17 September.

We will discuss the current investment environment, recent developments across New Zealand and international markets, risk management, and some of the companies and sectors we are currently watching closely.

If you would like to attend, please contact us by email to reserve a place.

Travel

8 September – Ellerslie, Auckland – Edward Lee

9 September – Albany, Auckland – Edward Lee

22 September – Lower Hutt – David & Gavin

25 September – Palmerston North – David & Gavin

Edward Lee

Chris Lee & Partners Limited