Market News

Johnny Lee writes:

Summer is well and truly underway now, as equity and bond markets continue to wind down for the year.

The last Market News for the year is reserved for a review of the 2024 New Zealand stock market, highlighting the winners and losers of the year.

As at the time of writing, the New Zealand 50 Gross Index is up 8.7% for the year. Remarkably, few stocks matched this performance, as 2024 was instead a year marked by greater extremes in both directions.

One stock stood head and shoulders above the rest: the best performer among the majors was utility services company Gentrack. Its share price rose over 100% this year, and it now carries a market value of $1.4 billion, similar to Kiwi Property Group or Briscoes.

The company had a truly transformational year. It reported a 25% increase in revenue this year and has now become a major component of the NZ50 Index. While the stock is not widely held by income investors yet – as it does not pay dividends – it is growing in multiple markets and sectors. The company is now actively seeking acquisition targets to sustain its growth.

Across the main sectors, there was a mix of successes and failures.

The Listed Property Trust sector, after years of battling higher interest rates, continued to struggle in 2024. Property stocks have been vocal about their expectations for a lower interest rate environment, anticipated in 2025.

Kiwi Property Group was the only major property stock to outperform the index, closing the year with a 12% gain.

Resido – Kiwi’s residential offering at Sylvia Park – is now live, and investors will be looking forward to its first full-year result in May. Kiwi Property Group is hoping Resido will add long-term value to the adjacent Sylvia Park offering, effectively creating a virtuous cycle as residents shop and work within the Sylvia Park complex. Kiwi Property Group has ambitions to replicate the model, if successful.

The retail sector saw two very big winners, and two very big losers.

Hallenstein closed out the year up 56%, paying strong dividends out of increasing cash flows despite a difficult environment for both its customers and suppliers.

Across the sector, Briscoes was up 19%, The Warehouse was down 33%, and Kathmandu was off nearly 47%. Hallenstein was clearly the star.

A key takeaway has been the value of maintaining a strong balance sheet. Hallenstein controlled its use of debt during the better years and is now flourishing during the tougher, higher-interest-rate environment. Dividends have been consistently strong, while its indebted peers have sold assets (including land in leaseback agreements) in a bid to manage their debt loads.

The banking sector also had a mix of winners and losers. Westpac Bank was the leader, up nearly 50% for the year. Throughout the financial year, the company announced a dividend increase, a special dividend, and a large increase to its share buyback programme.

ANZ also had a good year, up around 22%. Like many listed companies, ANZ announced the departure of its CEO, and new CEO Nuno Matos will be entering during a period of transformation as ANZ continues its integration of the recent Suncorp acquisition.

Heartland Bank, in contrast, faced a far more challenging year, falling 32%.

Its August result fell short of market expectations and saw its price decline from $1.15 to 96 cents.

The next two years will be important for Heartland, having placed its stake in the ground with regards to its growth ambitions in Australia. Dividends have been reduced to fund this growth, and shareholders will be hoping that this short-term pain is rewarded with improved, sustainable returns.

The electricity sector had a major development, with Contact Energy announcing its intention to acquire Manawa Energy (formerly Trustpower). Manawa’s share price rose 35% over the year, and the share price remains modestly below the takeover price – partly representing the risk of the deal failing – but perhaps offering a short-term profit opportunity for those confident in the takeover offer proceeding.

Genesis was the main underperformer in the sector, down a modest 7% for the year. Genesis made some progress towards its 2030 strategy and remains on track to deliver its ambitions to become New Zealand’s solar leader. The company hopes to have generation from its new investments online within the next year or two and is working hard to redesign its image after years of disdain from the “green” investment community. At the same time, it hopes to use Huntly’s base-load generation to provide stability as the sector invests further into renewables.

There were a number of other strong performers in 2024, outside of these sectors.

Fisher & Paykel had another good year, up 56% on the back of strong sales growth – particularly in consumable products. The company has a pipeline of new products coming to market and has developed relationships across the industry following the unprecedented growth seen during COVID.

One of the best performers – perhaps surprisingly – was a2 Milk, which rose 40% this year.

The company shocked the market by declaring its era of cash hoarding was over, and dividends would be forthcoming as early as next year. While global birth rates continue to weaken, Infant Milk Formula producers are battling for a greater share of a diminishing market.

It was a good year for the NZX as a company, with the exchange operator’s share price up over 40% in one of its best years. 2024 marked yet another year of listed company departures – New Zealand Oil & Gas, Geneva Finance, Arvida, Marlborough Wine Estates, Cannasouth – but a number of large-scale capital raisings, including Fletcher’s $700 million raised in September, illustrated the value of a public listing.

The NZX’s Smart Invest platform also found a winner with its new Bitcoin fund. Literally thousands of New Zealanders have begun using this product, with many up well over 50% already. Millions have now been invested into the fund, ranging from $50 investments to a recent trade of over $500,000.

Channel Infrastructure had a great year, up 38%. Much of this gain came late in the year, as the company announced a capital raising to begin work on a new bitumen storage facility for corporate client Higgins. Shareholders also enjoyed three dividends throughout the year, an early reward after the company’s transformation from refinery operator to importer and storage owner.

Infratil was another enjoying a strong year, with its data centre business moving from strength to strength. Infratil will no doubt be exploring opportunities to capitalise on these remarkable revaluations. The developments in the United States over the last few months will also offer risk and reward for its Longroad investment, as Infratil carefully weighs the opportunities ahead of it.

Two other notable outperformers were Turners Automotive and Freightways, both of which enjoyed near 30% gains for the year.

There were plenty on the other side of the ledger, unfortunately.

One of the worst performers this year was Synlait Milk, which finally succumbed to its debt burden and surrendered control to major shareholders Bright Dairy and a2 Milk. The stock was down 55% for the year.

The company is now almost entirely controlled by these two shareholders, with a few – mostly retail – shareholders hanging on for now. Next year will be a litmus test for the company, as it looks to win back those farmers who abandoned it following the struggles of 2024.

The good news was the repayment of Synlait bonds, alleviating a major source of market stress in the first half of the year. Pricing on the bonds fluctuated wildly as investors weighed the risk of default. Although the outcome was ultimately positive for bondholders, it is unlikely Synlait will offer further bonds in the future.

Fletcher Building had a year to forget, down 40% and suspending all dividends as it battled court cases and faced a very challenging trading environment for the construction sector.

It is difficult to see an immediate solution to the quagmire Fletcher Building finds itself in. Construction is cyclical, and the company will no doubt enjoy easier conditions once interest rates fall and consumer confidence is restored.

However, the theme of inconsistency seems never-ending. Dividends are inconsistent, leadership has been inconsistent, and strategic direction has changed multiple times over the last decade. Hopefully, new CEO Andrew Reding – if he is to remain in the role long-term – can provide a period of stability and consistent leadership.

Spark also had a poor year, down 39%. The company took the rare step of cutting its dividend, announcing that the March dividend would be marginally lower.

Further dividend cuts appear to be priced into the market, with the company now trading at an improbable dividend yield of nearly 12%. Concerns are mounting over its debt burden, particularly given its ambitions in the lucrative but expensive data centre industry. The recent sale of its remaining Connexa holding (its mobile tower business) demonstrates the company’s awareness of the costs involved in further expanding its data storage capabilities.

Ryman was another major drag on the index, ending the year down 29%. Its recent result forecast yet another poor year ahead, although the company hopes to reconsider dividends in the latter half of the decade.

Ryman’s issues with debt management are leading some investors to abandon the company, instead shifting focus to its listed peer, Summerset, which rose 26% this year. Summerset recently saw its total market value climb above Ryman’s and announced the acquisition of more land – including one near Paraparaumu College in Kapiti – to fuel further growth.

Outside of these companies, the wine industry was another sector clearly struggling. Many listed wine producers had poor years and are forecasting further challenges in 2025.

While 2024 saw a modest gain across the New Zealand share market, it was a year of big winners and big losers, particularly among the heavyweights.

Next year will be pivotal for many corporates. Contact Energy has a major development expected, a2 Milk plans to pay its first-ever dividend, and Santana Minerals is hoping 2025 will mark progress from gold explorer to gold producer.

We wish readers an enjoyable holiday period. Our office closes at 12pm on 20 December and reopens on 8 January. We will monitor emails over the break for anything urgent but will be unavailable via phone.

Chris Lee and Partners Limited