How Will NZ’s Consumer Discretionary Sector Recover from Global Macro-economic Uncertainties - 2 Stocks to Consider

This report is updated version of the report published on 16^th January 2025 (New Zealand Time: 6:15 PM (GMT +13)

Company Overview:

KMD Brands Limited (NZX: KMD) is a global outdoor, lifestyle as well as sports company. The company is a designer, marketer, retailer and wholesaler of apparel, footwear and equipment for surfing and the outdoors. Restaurant Brands New Zealand Ltd (NZX: RBD) is the corporate franchisee that specialises in managing multi-site branded food retail chains.

Kalkine’s Sector Report covers the Key Financial Metrics, Risks, Outlook, Technical Analysis along with the Valuation, Target Price, and Recommendation on the stock.

1. Sector Landscape and Outlook

NZ’s gross domestic product (or GDP) witnessed a fall of 1.0% in the September 2024 quarter, following a revised 1.1% decrease in the June 2024 quarter, as per Stats NZ. During the September 2024 quarter, activity fell in 11 of the 16 industries making up the production measure of GDP, with the largest declines in manufacturing, business services as well as construction. Notably, goods-producing and service industries declined, while primary industries increased. Some of the industries witnessed rises, led by rental, hiring as well as real estate services, and agriculture.

Notably, household consumption expenditure declined 0.3% this quarter, because of a fall in household essentials like grocery food and electricity. The spending increased on durable goods like motor vehicles and audio-visual equipment and phones. Also, the value of imported international transportation services stood at $1.7 Bn in the September 2024 quarter, as per Stats NZ. NZ spending on transportation services in the September 2024 quarter was marginally up ($11 Mn or 0.7%) as compared to September 2023 quarter.

Exhibit 1: Gross Domestic Product, Quarterly and Annual Growth Rates, Chain-volume, Sept 2023–Sept 2024

Data Source: This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group

Food Prices Rose For 12 Months Ended December 2024

As per Stats NZ, food prices rose 1.5% in the 12 months ended December 2024, after a 1.3% rise in the 12 months ended November 2024. The higher prices for grocery food as well as restaurant meals and ready-to-eat food fuelled the annual rise in food prices, up 2.7% and 3.1%, respectively. The price increase in grocery food was because of increased prices for butter, standard 2L milk, and olive oil.

Despite an overall rise in food prices, decreasing prices in the fruit and vegetables group witnessed the largest impact on food prices, declining 8.0% in the 12 months ended December 2024. The fruit and vegetable prices were driven by lower prices for kūmara, potatoes, and onions.

Decline in Vehicle Imports

The imports of vehicles, parts, and accessories to NZ declined $2.95 Bn to $8.9 Bn in the year ended October 2024 as compared to the year ended October 2023, as per Stats NZ. Leading the decline were passenger motor vehicles (falling $1.8 Bn), vehicles for the transport of goods (down $469 Mn), and tractors (down $349 Mn). Notably, the total value of passenger motor vehicles imported during the 12 months ended October 2024 stood at $5.4 Bn – a decrease of 25% on the previous year.

This fall was led by EVs (down $853 Mn), petrol cars between 1.5–3 litres (declining $340 Mn), and petrol and diesel cars under 1.5 litres (falling $296 Mn).

Exhibit 2: Vehicles, Parts, and Accessories Imports ($ Bn), year ended, May 2024 – October 2024

Data Source: This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group

Key Risks and Challenges:

As per SOPI (December 2024), China, which is the world's second-largest economy, was hit by numerous challenges, which include a property crisis and a weak consumer and business confidence. Furthermore, falling producer prices as well as a rise in inflation (although still low) continues to squeeze the profits of manufacturing businesses within China. Overall, the consumer discretionary sector is exposed to the risks related to geopolitical tensions and economic policy uncertainties.

Also, uncertain fiscal and monetary policies in the US and macro-economic tensions might also weigh over the broader consumer discretionary sector.

Exhibit 3. Key Risks in Consumer Discretionary Sector:

Source: Analysis by Kalkine Group

Outlook:

Horticulture export revenue is anticipated to increase by 12% to $8.0 Bn for the year ended 30 June 2025. This growth is expected to be aided by kiwifruit industry, attributed to a record 2024 crop and increased production volumes of gold kiwifruit in the 2025 season. Wine export revenue is expected to recover from a challenging 2023/24, aided by robust consumer demand for NZ wine. Apple and pear export revenue is expected to surpass $1.0 Bn, spurred by recovering export volumes after the cyclone-affected 2023 season.

Despite elevated uncertainty, food and fibre sector export revenue is anticipated to improve in 2024/25 as good production conditions, higher commodity prices, and a slightly lower NZD against the USD offset the global challenges. With respect to Meat and wool, export revenue is expected to increase slightly to $11.4 Bn in the year ended 30 June 2025 with rising prices offsetting declines in export volumes.

Apart from the sector-specific factors, an analysis on 2 NZX-listed companies is provided. This report covers their insights, outlook, performance and potential as expected to be delivered in the near to medium term.

1) Restaurant Brands New Zealand Limited (Recommendation: Hold, Potential Upside: Low Double-Digit) (M-Cap: NZD 520.2 million, Annual Dividend Yield: 6%)

Business Description:

Restaurant Brands New Zealand Limited (NZX: RBD) is engaged in the operation of quick service and takeaway restaurant concepts.

Outlook:

In addition to focusing towards margin and profit recovery, RBD made considerable progress in advancing its growth strategy, even under tough market conditions. Across all the markets, the company is launching innovative new products, transforming its menus, investing in digital channels, increasing digital sales as well as delivering enhanced marketing programmes. Looking forward, the focus would be towards improving margins and profits, while placing RBD for the next phase of growth with the help of network expansion, technology advancement as well as delivering winning, digital-first, disruptive QSR brands. RBD is aspiring to reach $2 Bn in Group store sales.

Technical Overview:

Technical Commentary

On the daily chart, RBD’s stock prices broke above the Neckline of an Inverse Head and shoulders pattern, indicating a positive trend. Additionally, the momentum oscillator RSI (14-period) is trading above its midpoint, providing more support to the previous analysis. The prices are trading above both trend-following indicators 21-period and 50-period SMAs, which may act as dynamic support levels for the stock; in contrast, the stock’s next round level may act as a sentimental resistance. A significant support level is at NZD 3.70, while a crucial resistance level is at NZD 4.50.

Fundamental Valuation

P/E Based Relative Valuation

Stock Recommendation

Considering the facts above, a ‘Hold’ recommendation on the stock has been provided at the current market price of NZD 4.17 per share, down by 0.48% as on 16 January 2025.

2) KMD Brands Limited (Recommendation: Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 302.4 Mn)

Business Description:

KMD Brands Limited (NZX: KMD) is a global outdoor, lifestyle as well as sports company. The company is a designer, marketer, retailer and wholesaler of apparel, footwear and equipment for surfing and the outdoors.

Outlook:

KMD provided an update on trading performance for the first quarter of the financial year ending 31 July 2025 (or Q1 FY 2025). The group gross margin was above last year for Q1 FY 2025, and all brands have been actively managing costs while facing global inflation pressure. The refreshed authentic outdoor brand advertising outperformed earlier campaigns in Kathmandu’s largest market Australia. Brand awareness has witnessed improvement, and the company is expecting that the new campaign would have a positive impact on building critical long-term brand associations.

Technical Overview:

Technical Commentary

On the daily chart, KMD’s stock prices are forming a trading range characterized by lower highs and higher lows, suggesting that the current sideways period stock might continue to persist in the near future. Moreover, the momentum oscillator RSI (14-period) is hovering near the midpoint, adding further evidence to the mentioned recommendation. Prices are trading between its previous peak and trough, which might function as resistance and support levels for the stock, respectively. A significant support level for the stock is positioned at NZD 0.370 , while critical resistance level is located at NZD 0.500

Fundamental Valuation

P/E Based Relative Valuation

Stock Recommendation

Considering the facts above, a ‘Buy’ recommendation on the stock has been provided at the current market price of NZD 0.420 per share (New Zealand Time: 1:00 PM (GMT +13)) as on 16 January 2025.  

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is January 16, 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4:  Annual Dividend Yield is on a Trailing Twelve Month (TTM¹) basis and are subject to change based on factors such as company performance, stock price changes, etc.

Note 5: Kalkine reports are prepared based on the stock prices captured either from REFINITIV or Trading View. Typically, REFINITIV or Trading View may reflect stock prices with a delay which could be a lag of 25-30 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.