Is NZ’s Consumer Discretionary Sector Resilient Enough to Withstand Macro Uncertainties - 2 Stocks to Consider

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. The Colonial Motor Company Limited (NZX: CMO) owns motor vehicle dealerships throughout the country (NZ).

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

Stats NZ stated that food prices across Aotearoa NZ increased 1.9% in January 2025, following a 0.1% increase in December 2024. Around 65% of items priced in the food basket were more expensive in January 2025 as compared with an average of 54% per month in 2024. The proportion of the food basket that rose by more than 5% in price was the highest in 5 years. The increased prices for grocery food contributed the most to the January 2025 increase, with higher prices for boxed chocolates, milk, and chocolate blocks. Notably, increased prices for fruit and vegetables, up 2.8%, also contributed to the monthly rise in food prices. When adjusted for seasonal effects, fruit and vegetable prices fell 0.6%.

Stats NZ stated that alcoholic beverages and tobacco prices rose 2.4% in January 2025, driven by increased prices for cigarettes and tobacco. The new tobacco excise tax that came into effect on January 1, 2025, drove tobacco prices up.

Exhibit 1: Milk and Chocolate, Weighted Average Price ($), Sept 2024–January 2025

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

What Lies Ahead for Horticulture?

As per Situation and Outlook for Primary Industries (SOPI) December 2024, the wine export revenue is expected to recover from a challenging 2023/24 because of robust consumer demand for NZ wine. The export revenue from wine is expected to increase by 3% fueled by robust underlying consumer demand for NZ wine. This was after a challenging 2024 during which demand was impacted by excess inventory held by global retailers.

With respect to wine, while short-term challenges are limiting the export volumes and profitability, the outlook over the medium to long term remains positive because underlying consumer demand for NZ wine is strong.

Exhibit 2: Horticulture Sector Export Revenue

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

Rise in NZ’s CPI

Stats NZ stated that NZ’s CPI rose 2.2% in the December 2024 quarter as compared to the December 2023 quarter. This was the 2^nd consecutive quarter that the annual inflation rate has been within the RBNZ’s target band of 1% - 3%. Notably, prices are still rising, but not as much as previously recorded. The largest contributor to the annual inflation rate was rent, which rose by 4.2%. Almost a fifth of the 2.2% annual increase in the CPI was because of rent prices.

Key Risks and Challenges:

RBNZ stated that global economic growth is anticipated to remain subdued over the near term. Notably, geopolitics, which include uncertainty regarding trade barriers, can weaken the global growth. The global economic activity is expected to remain fragile over the medium term considering the increasing geoeconomic fragmentation. Also, consumer price inflation in NZ is anticipated to be volatile over the near term because of lower exchange rate and increased petrol prices.

Exhibit 3. Key Risks in Consumer Discretionary Sector:

Source: Analysis by Kalkine Group

Outlook:

As per SOPI December 2024, NZ wine sales have been growing in key markets despite challenges like constrained disposable income and fluctuations in the consumer preferences, which resulted in the decreased consumer demand for wine globally. Unlike NZ wine, consumer sales for most other countries’ wine were down in NZ’s key markets. This robust underlying consumer demand for NZ wine is anticipated to help export revenue, which is expected to rise 3% to $2.2 Bn in the year ended 30 June 2025.

Notably, Avocado export revenue declined 52% to $37 Mn in the year ended 30 June 2024, the lowest since 2012/13. Despite the challenges, there remains an optimism for the current season with export revenue expected to grow 147% to $91 Mn in the year ended 30 June 2025. The optimal growing conditions consisting of sunshine, stable temperatures, evenly distributed rain as well as minimal frosts resulted in the large, high-quality crop.

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) The Colonial Motor Company Limited (Recommendation: Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 212.1 million, Annual Dividend Yield: 7.49%)

Business Description:

The Colonial Motor Company Limited (NZX: CMO) is a NZ-based company, which is engaged in operating franchised motor vehicle dealerships.

Outlook:

The H2 FY 2024 largely lived up to the expectation but a robust December result, supported by continued prudent cost management, resulted in the 6 months ending on a more positive note. The company would continue to help the property investment as well as refurbishment programme, including the new showroom at Fagan Motors in Masterton. Considering the concentration on cost reduction, efficiency, a revitalised used vehicle focus as well as the strength of core franchise offerings, CMO is well-positioned to compete in the changed and challenging market environment.

Technical Overview:

CMO Daily Technical Chart, Data Source: REFINITIV

Technical Commentary

On the daily chart, CMO’s stock prices are forming a trading range characterized by lower highs and higher lows, suggesting that the current sideways period in the stock might continue to persist in the near future. Moreover, the momentum oscillator RSI (14-period) is fluctuating around its midpoint, providing more support to the previous observation. Prices are trading between its previous peak and trough, which might function as resistance and support level for the stock, respectively. A significant support level for the stock is located at NZD 6.25, while critical resistance level is placed at NZD 6.66.

Stock Recommendation

Considering the facts above, a ‘Buy’ recommendation on the stock has been provided at the closing market price of NZD 6.49 per share, up by 1.72% as on 20 February 2025.

2) KMD Brands Limited (Recommendation: Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 284.6 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 outdoors.

Outlook:

KMD released an update on trading performance for the first 5 months of the 2025 financial year. The group online sales performance was a highlight, with YTD sales 18.4% above last year, and all 3 brands achieving double digit sales growth YTD. Notably, the online channel remains a key growth priority for KMD. All the brands are actively managing costs while facing global cost pressure. Kathmandu has invested an additional $3 Mn YTD to refresh brand advertising (increased H1 weighting), increase product newness as well as innovation, and improve the overall customer experience.

Technical Overview:

KMD Daily Technical Chart, Data Source: REFINITIV

Technical Commentary

On the daily chart, KMD’s stock prices are forming a Head and shoulders pattern, indicating a negative bias in case prices penetrate the pattern’s Neckline at NZD 0.385. Moreover, the momentum oscillator RSI (14-period) is trading below its midpoint, adding further evidence for the mentioned recommendation. Prices are trading below both the 21-period and 50-period SMAs, which might function as dynamic resistance levels for the stock; in contrast, the stock’s most recent low might act as a support. An important support level for the stock is placed at NZD 0.385, while key resistance level is situated at NZD 0.445.

Fundamental Valuation

P/E Based Relative Valuation

Stock Recommendation

Considering the facts above, a ‘Buy’ recommendation on the stock has been provided at the closing market price of NZD 0.40 per share, down by 2.44% as on 20 February 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 February 20, 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.