Johnny Lee writes:

As we near the end of the year, market activity is beginning to decline as investors and the companies they hold wind down ahead of the holiday break.

All of our major companies have now reported their 2024 results. By the end of next week, almost all of their dividend payments will have been made and, barring a surprise, all major bond issues will have been completed.

One event that is expected to occur during this holiday period is the Commerce Commission’s decision on the Manawa takeover, which Contact Energy announced back in September.

The decision has already been delayed once – it was expected late November – and may be pushed out further. One imagines that productivity at the Commerce Commission does not peak on December 24, the expected date.

This decision has major implications for both Manawa and Contact shareholders, and the electricity sector at large. Both companies hope that by combining the assets of each company, Contact will be better placed to accelerate new generation across the country.

For Manawa shareholders, it will mean a payout at around $6 a share – the exact price dependent on Contact Energy’s share price – and the end of a fairly long journey on our exchange. After splitting off the Tilt Renewable business and its retail business (both eventually sold to Mercury), the final acquisition by Contact Energy will see Manawa depart our exchange for good.

For Contact, it is investing in a small addition to its generation portfolio, a pipeline for new assets, and a raft of new shareholders joining the table, including Manawa’s major shareholder, Infratil.

With submissions being made on both sides of the debate—mostly on the subject of whether the merger will see higher prices or lower prices for consumers—the Commerce Commission has plenty of expert opinion to consider ahead of what will be an important moment for New Zealand equity markets.

Chorus has presented its Investor Day to shareholders, declaring its “Road to 2030” strategy as the company continues its journey from Network Builder to Network Operator.

Chorus has had a strong year, with its share price up 15% and lifting its dividends from 42.50 cents to 47.50 cents. Revenue and earnings both saw modest increases over the year.

Chorus has grown its revenue in four of the last five years, encompassing a period of both (relatively) high interest rates and low interest rates. While part of this growth has been due to population growth, the company is also changing the way it spends its revenue, focusing more on shareholder returns and less on capital expenditure.

The battle between Chorus and FWA—Fixed Wireless Access—continues, with Chorus firmly (and predictably) of the view that wired broadband remains the only option for the country for users prioritising reliability and speed.

Evolution of wireless technology remains a key threat for investors, although churn rates suggest many people switching to wireless broadband are returning to fibre shortly afterwards. The company hopes that being both price competitive and ahead of the technology curve will help keep its competition at bay.

Chorus is also exploring its options with regard to its stockpile of copper cabling. With over 4,000 kilometres of copper cables, Chorus believes the wires could have a value in the tens of millions of dollars.

The macro trends remain positive. Data consumption continues to grow, with Chorus noting that there has been notable growth among the older cohort of New Zealanders using streaming services.

On this theme, Chorus has highlighted the opportunity provided by retirement villages, listing them in the “Priority Segments” for future growth. Chorus is also looking at opportunities in both the holiday home market and low-income households through Kāinga Ora.

Longer term, among Chorus’s goals is to ensure its dividend is both sustainable and growing in line with inflation, with next year’s forecast affirmed by the company to grow from 47.50 cents to 57.50 cents.

The next decade will see the rest of the Crown Equity and Crown Debt securities reach maturity. This may mean replacing non-interest-bearing debt with new debt, and may mean either repayment of equity or the issuance of new shares in their place.

Until then, the company is focused on retaining customers on the fibre network, while focusing on becoming an efficient and simple business. The regulatory regime now looks stable, and investors can look forward to modestly improving dividends in the years ahead.

Scales also had a brief update last week, announcing a lift to its January dividend and hiking its previous guidance following strong sales from Mr Apple and continued growth in the Global Proteins market.

The company is forecasting a good year ahead for Mr Apple, with larger, better apples, and a greater proportion of premium brands, like Dazzle. Export numbers are also expected to rebound following last year’s cyclone-impacted result, with volume in line with 2022’s result of 3.3 million trays.

Global Proteins’ contribution continues to grow. Esro Petfood, the company’s new European pet food processor, is expected to be profitable as early as next year.

This move into proteins and pet food has provided some useful diversification for the company, and Scales remains on the hunt for opportunities to grow both organically and inorganically through acquisition.

The dividend was lifted from 4.25 cents per share back to 7.25 cents per share. Assuming a similar dividend in July—which the company has suggested is likely—it will move the annual dividend to 14.50 cents, nearer to pre-cyclone levels.

Scales did advise that, over time, the imputation attached to the dividend may diminish, as more earnings are derived offshore.

Many of our horticulture companies have struggled over the last few years, with cyclones, logistical logjams, and high interest rates all presenting challenges for small exporters in this corner of the world.

But for two of our largest—Scales and Seeka—the year has seen a recovery, with both now up around 15% for the year. Their peers in the viticulture sector will no doubt be hoping for a similar recovery next year.

Chris Lee & Partners Limited