Deloitte South Island Index shows solid annual performance

Deloitte South Island Index shows solid annual performance

South Island listed companies collectively gained 6.9% in market capitalisation for 12-month period to 30 September

The Deloitte South Island Index continues to set new highs, gaining a solid $1,394.5 million (6.9%) in market capitalisation during the year to 30 September 2017, once again ending the period at its highest point since its inception.

South Island listed companies have bounced back from their collective decline in market capitalisation in the December 2016 quarter with three straight quarters of consecutive growth, according to the annual review of the Deloitte South Island Index presented last night in Christchurch.

The Index tracks the quarterly performance of listed companies with operations in the South Island. The 6.9% gain in the year ended 30 September comes after a 3.9% gain in the most recent quarter.

Sixteen of the 31 companies in the Index grew their market capitalisation during the past year and the Index’s annual growth outperformed all comparator indices tracked except for the Dow Jones, which was the stand out performer for the twelve months with growth of 22.4%. The S&P/NZX 50 Capital Index gained 3.7% and the ASX All Ords grew by 4.0% during the year to 30 September 2017.

Corporate finance partner Scott McClay says the three largest companies in the Deloitte South Island Index, Ryman Healthcare, Meridian Energy and EBOS Group, continue to provide the Index with significant weight.

“Over the last year these three, each with market capitalistations in excess of $2 billion, collectively grew 1.4% in market capitalisation led by Meridian Energy’s $627.9 million (9.4%) growth,” says Mr McClay.

“But it was particularly pleasing to see the next tier of companies, outside of the top three, continuing to perform throughout the year. Companies 4 to 15 on the Index in terms of market capitalisation (all with market caps above $100 million) collectively experienced 28.8% growth over the twelve months to 30 September 2017, providing resilience from the backbone of the Mainland economy.”

Outside of the three largest companies, 15 achieved gains in market capialitstion, 12 saw declines and one company showed no change in the year to 30 September 2017.

The outstanding performer for the year was Synlait Milk with a remarkable increase of $657.8 million (124.0%) in market capitalization. During the September 2017 quarter, Synlait Milk became the fourth index participant to exceed $1 billion in market capitalisation and moved up one spot to become the fourth largest company on the Index.

“Synlait Milk has built on each quarter’s results through the twelve month period, making gains in market capitalistation in all four quarters, with the greatest gain being 56.4% in the most recent quarter to 30 September. Their annual financial results for the year ending 31 July 2017 showed double digit growth in both profit and revenue during the period,” says Mr McClay.

Other top performers for the year to 30 September 2017 included Heartland Bank growing $222.2 million (30.6%) in market capitalisation and New Zealand King Salmon Investments growing $91.2 million (58.9%).

The company with the largest annual fall in market capitalisation in dollar terms was EBOS Group, dropping $250.6 million (8.8%) in the year to 30 September 2017, followed by Ryman Healthcare down $180.0 million (3.7%) and Silver Fern Farms down $54.2 million (49.5%) during the year.

Four of the seven sectors in the Deloitte South Island Index achieved growth in their collective market capitalisation over the year to 30 September 2017, led by the Primary sector with an increase of 40.6%. At the other end, the Manufacturing & Distribution sector dropped 3.7% over the same period.

Mr McClay says the outlook for the Deloitte South Island Index over the next year is particularly difficult to predict.

“The last year has seen a slowdown in the growth of the Index from its substantial growth over the previous three years. What remains to be seen is if this is an indication of a trend for the next few years, or just an anomaly in the overall trend,” says Mr McClay.

“The last year has been packed with a number of significant global political events and there is currently elevated geopolitical risk from the rising tensions with North Korea. And closer to home, last month’s New Zealand election is still undecided as we wait for the outcome of coalition talks. All of these combine for heightened levels of uncertainty,” he adds.

“On the other hand, historically Mainland companies have been able to take advantage in volatile times to outperform the market – both nationally and globally,” concludes Mr McClay.

To see the full Deloitte South Island Index year in review report, go to www.deloitte.com/nz/southislandindex.

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