What Lies Ahead for Broader Industrials Sector in NZ – 2 Stocks to Consider

Company Overview:

Air New Zealand Limited (NZX: AIR) is engaged in the transportation of passengers as well as cargo on integrated network of scheduled airline services to, from and within NZ. Accordant Group Limited (NZX: AGL) is a New Zealand-based recruitment company engaged in the supply of temporary staff, contractor resources, and recruitment of permanent staff.

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

Sector Landscape and Outlook

As per the ‘Fortnightly Economic Update’ dated 24^th January 2025 released by The Treasury, the economic indicators have been pointing to activity stabilising through late-2024 and picking up over 2025. The annual inflation for the December quarter remained at 2.2% and underlying inflationary pressures eased. Notably, the business confidence perked up during the December quarter. As per NZIER’s Quarterly Survey of Business Opinion (QSBO), there are now more firms anticipating conditions to improve over the year ahead.

With improvement in confidence, employment has been showing signs of stabilising. The QSBO demonstrated that labour demand was soft in the quarter, but firms are anticipating to increase hiring over 2025. The Real Estate Institute of New Zealand (REINZ) House Price Index (HPI) rose by 0.2% in December, despite declining sales figures. The HPI was down 1.1% for the 2024 calendar year but might have reached a turning point, with growth being positive overt the last 2 months.

Overseas merchandise trade: December 2024

As per Stats NZ, in December 2024, goods exports increased by $995 Mn (or 17%) to $6.8 Bn and goods imports rose by $404 Mn (or 6.5%) to $6.6 Bn. The monthly trade balance was a surplus of $219 Mn. With respect to exports, milk powder, butter, and cheese increased $689 Mn (or 39%) to $2.4 Bn. Notably, other dairy-based products, which include infant formula, increased this period, and casein and caseinates fell during the period. Talking about China, the total exports increased $342 Mn (or 22%), with the largest increases witnessed in milk powder, butter, and cheese, up $265 Mn.

Coming to Australia, total exports increased $64 Mn (or 8.7%). The largest increases were milk powder, butter, and cheese, up $35 Mn and precious metals, jewellery, and coins, rising $29 Mn.

Exhibit 1: Merchandise Trade Values ($ Bn), Exports and Imports, December Months, 2021–2024

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

Rise in Home Consents

As per Stats NZ, there were 3,100 new homes consented in NZ in November 2024, reflecting a rise of 4.8% as compared to November 2023. There were 1,402 stand-alone houses consented, reflecting a fall of 4.1% as compared with November 2023, and 1,698 multi-unit homes consented, demonstrating a rise of 14% over the same period. While the number of homes consented each month witnessed some fluctuations, the trend has remained relatively steady for the last year.

However, when seasonal effects are excluded, the number of new homes consented in November 2024 witnessed a rise of 5.3% as compared with October 2024. There were 33,609 new homes consented in NZ in the year to November 2024, reflecting a fall of 12% as compared with the year ended November 2023.

Exhibit 2: Number of New Homes Consented, Monthly, Trend, June 2024 – November 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 the recent FEU released by The Treasury, the long-term global bond yields rose sharply in the recent past as policy uncertainty in the US and political instability in Europe shed light on fiscal and economic vulnerabilities. In the currency markets, strong growth in the US and concerns regarding the tepid growth in Europe and China has increased the divergence between the anticipated pace of monetary easing, supporting the US dollar. Overall, the broader industrials sector is exposed to risks such macroeconomic challenges, uncertainties pertaining to future rate cuts, etc. 

Exhibit 3: Key Risks in Industrials Sector:

Source: Analysis by Kalkine Group

Outlook:

As per the recent FEU, annual net migration eased to 30,600 in November, reflecting a fall from 133,000 in November 2023. The 3-month sum on net migration stands at 4,600, some way below the medium-term assumption of 10,000 a quarter. The has been continuation of gradual recovery in tourism, with monthly visitor arrivals for November increasing 1.0%. While the New Zealand International Visitor Conservation and Tourism Levy rose from $35 to $100 in October, there were no signs of it impacting the arrival numbers. Notably, while tourism continues to recover at a slower-than-expected pace, a lower exchange rate might offer a boost to tourist service exports into 2025.

The FEU also highlighted that robust momentum in the US underpinned the IMF’s latest forecast of steady global growth. The outlook in January’s World Economic Outlook update was broadly unchanged for 2025 and 2026 as compared to the October projections. However, the difference between countries widened. The outlook for China remains steady over 2025 and 2026, but down a little as compared to 2024.

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) Air New Zealand Limited (Recommendation: Hold, Potential Upside: Low Double-Digit) (M-Cap: NZD 2.08 billion, Annual Dividend Yield (TTM)¹: 5.65%)

Business Description:

Air New Zealand Limited (NZX: AIR) is engaged in the transportation of passengers and cargo on an integrated network of scheduled airline services to, from and within NZ.

Outlook:

AIR continues to make investments throughout the business which are contributing toward operational efficiencies, customer satisfaction as well as profitability. AIR is expecting earnings before taxation for the first half of the 2025 financial year to be in the range of $120 Mn - $160 Mn. The company has witnessed early signs of recovery in corporate travel. AIR made 2 new appointments to its executive team, appointing Nathan McGraw as Chief Safety and Risk Officer and Scott Wilkinson as Chief Commercial Officer. Scott’s significant understanding of customer experience as well as airline commercials would be invaluable as the company continues to grow its business and build stronger market positions throughout the network, and beyond.

Technical Overview:

AIR Daily Technical Chart, Data Source: REFINITIV

Technical Commentary

On the daily chart, AIR's stock prices broke above a double bottoms pattern, suggesting a positive trend. Moreover, the 14-period RSI momentum oscillator is trading above its midpoint, providing more evidence to the mentioned recommendation. Prices are trading above both trend-following indicators 21-day and 50-day SMAs, which might function as dynamic support levels for the stock; in contrast, the stock’s next round level may act as a sentimental resistance. An important support level for the stock is situated at NZD 0.570, while crucial resistance level is placed at NZD 0.70.

Fundamental Valuation

P/E Based Valuation

Stock Recommendation

Considering the aforementioned factors, a ‘Hold’ rating is given on the stock at the closing market price of NZD 0.62 per share as on 30 January 2025

2) Accordant Group Limited (Recommendation: Speculative Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 15.7 million)

Business Description:

Accordant Group Limited (NZX: AGL) is a New Zealand-based recruitment company engaged in the supply of temporary staff, contractor resources, and recruitment of permanent staff.

Outlook:

The company has decided not to pay a dividend, with a focus towards return to profitability, modest investment as well as reduction in debt where possible. Notably, Absolute IT is now appropriately sized for the current reduced demand for tech talent, while retaining enough capacity to deliver on pent up demand anticipated to materialise next financial year. The business units are reorganising to meet the anticipated uplift in demand.

Technical Overview:

Technical Commentary

On the daily chart, AGL’s stock prices are forming a trading range characterized by higher lows and lower highs, suggesting that the 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 further support to the previous observation. Prices are trading between its previous peak and trough, which might function as dynamic resistance and support levels for the stock, respectively. A significant support level for the stock is positioned at NZD 0.410, while critical resistance level is located at NZD 0.54

Stock Recommendation

Considering the aforementioned factors, a ‘Speculative Buy’ rating is given on the stock at the closing market price of NZD 0.465 per share, down by 1.06% as on 30 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 neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is January 30, 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.