Market News 28 September 2026

Johnny Lee writes:

A strong result from Fonterra sent its share price higher last week, as the company produced its first set of full-year financials since the sale of Mainland Group.

The company reported an underlying net profit of $1.2 billion, with earnings of 71 cents per share, up from 54 cents last year. A dividend of 33 cents will be paid on 15 October.

This brings the total dividend for the year to 73 cents, although the company points out that 16 cents was attributable to Mainland, meaning that holders should adjust expectations going forward.

The sale of Mainland was followed by a significant capital return, with $2 per share paid in April of this year. While this distorts the headline figures, the underlying result was strong, both on a nominal basis and as a return on its capital.

The 2026 financial year saw record milk volumes, with 1,571 million kilograms of milk solids collected. Market share remained steady at 78%. Importantly, the company also took the opportunity to deleverage, reducing net debt from $1.7 billion to $967 million, representing a gearing ratio of around 20.8%, well below the bottom of its target range.

Fonterra also outlined its strategy for the years ahead, as it looks to capitalise on its position.

Its short-term plan involves investing between $1.3 and $1.6 billion, annually, into an expansion of its South Island protein network, its energy and wastewater strategy, and a sustaining asset programme.

As part of this, its debt ratios will likely change. Gearing is expected to climb over the next three years, albeit remaining within the lower end of its 30% - 40% target range.El Nino remains front of mind and represents a risk for the business heading in 2027. Fonterra has responded by way of adjusting its forecasts, which includes an earnings per share range of 65 to 85 cents.

Overall, the result left little for the pessimists. Fonterra enters the 2027 financial year with a stronger balance sheet, a strategy for growth, and a smaller, perhaps less volatile business than the year prior, following the Mainland sale. While guidance is particularly uncertain in the face of evolving weather patterns, the reduced gearing gives the company flexibility to approach this as it unfolds.

Fonterra’s shareholders fund, which is available to the public, has had a strong 2026. Indeed, it has been one of our strongest performers – the share price began the year around $8.16, before falling to around $6.15 after the Mainland sale distribution of $2. Now, it has returned to $8.40 while paying healthy dividends, providing ample reward for shareholders.

KMD Brands, formerly Kathmandu, also reported its financial results last week.

It has been a torrid few years for KMD shareholders, culminating in a share consolidation in July which saw every 25 shares become 1 share, lifting the share price from near 8 cents to $1.92 today.

Last week’s result saw some improvement, however, with growth seen across all three business lines.

While the headline result - a $414 million loss - looks dreadful, this does include a $462 million impairment charge mid-year. Earnings otherwise improved, up 138%. No dividend was declared.

Sales rose 6.5 percent year on year. Both Rip Curl and Kathmandu have now seen five consecutive quarters of sales growth, while footwear brand Oboz has been more volatile, although positive over the year. Online sales continue to be a key avenue, with growth seen both in terms of sales, and sales as a percentage of the overall business. 15 percent of all Direct-to-Consumer sales are now conducted online.

The balance sheet has improved. Net debt now sits at $48.1 million, an improvement of $4.7 million.

Store closures continue. 17 were closed over the 2026 financial year, made up 11 Rip Curl and 6 Kathmandu stores, as the company targets “optimal profitability and ROI for store portfolio”. Store numbers will likely remain volatile, as this strategy continues.

Guidance is for a further increase in earnings next year, largely driven by cost-saving initiatives. Like many of its retail peers, cost control has become a huge focus in a difficult economic environment. KMD also reported that the first seven weeks of the next financial year have seen some improvement, particularly for the Kathmandu brand.

Asset sales may also form part of next year’s story. The company had earlier indicated that it was looking to divest its Southeast Asian manufacturing facility, with the intention to move production to a third-party facility over the next year. This process continues.

It has been a difficult journey for KMD Brands and a painful one for long-term shareholders. The good news is that, despite a challenging economic environment, sales are still growing and earnings are growing alongside them. The recent capital raise has seen an improvement to its balance sheet, and while the pathway back to meaningful profits and dividends continues, the current strategy seems to be heading in the right direction.

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Last week also saw an important development for holders of the Kiwibank Perpetual Preference Shares, KWBHA.

These securities were issued back in 2021 at a rate of 4.93%, a significant margin (2.60%) above rates at the time.

Kiwibank has confirmed it will be repaying on the first optional redemption date, on 2 November. While this was expected, it provides holders with certainty that liquidity will be available as we head into the holiday season.

Repayment also comes at a time when interest rates are spiking, with continued upward pressure on the oil price forcing swap rates higher. Recent issuance from Metlifecare and Kiwibank itself were priced higher than initially anticipated, as investors fret over geopolitical factors.

Holders of the Preference Shares should be mindful that the redemption does come during a particularly busy end of the year. Christchurch City Holdings, ASB Bank, Argosy, Auckland Airport, Contact Energy, Infratil and Ryman will collectively be repaying around $1.5 billion to bondholders this year.

Contact Energy has already indicated its intention to issue a new bond to replace the upcoming maturity. Ryman issued a replacement in June. More may emerge.

The repayment of KWBHA was not unexpected, but confirmation is welcome and allows holders a chance to organise their affairs ahead of time. So far, excluding the COVID delays, the Perpetuals have been a success for investors, paying high margins while enabling the banks to meet their funding needs from largely domestic sources.

Six more of these bank perpetual securities exist on our exchange – two from ANZ, two from BNZ, one more from Kiwibank and one from Westpac.

New issues

Lodestone Energy has opened its IPO at an offer price of $2.25 per share, with the company expected to list on the NZX on 22 October.

Lodestone Energy currently owns and operates five solar farms across New Zealand and plans to use the capital raised through the IPO to support its next stage of growth, including the development of additional solar farms.

Investors will be able to find the Investment Statement on our website from tomorrow.If you would like an allocation of shares, please contact our office with the amount you would like to invest and your CSN, and we will send you a contract note.

Contact Energy is expected to issue a new subordinated capital bond in October. We expect the bond to have a term of around 6 years, with an interest rate of at least 6.00% per annum.

Investors who are interested in this potential bond are welcome to contact us with their CSN and an indication of the amount they may wish to invest. We will then contact them once the final terms and further details are available.

Travel

Our advisors have an extensive travel schedule coming up over the next quarter, including the following dates:

6 October – Napier (Mission Estate) – Edward Lee6 October – Blenheim – Chris Lee9 October – Wellington – Gavin Parkes21 October – Auckland (Albany) – Edward Lee22 October – Auckland (Ellerslie) – Edward Lee29 October – Christchurch – Johnny Lee (FULL)

Chris Lee & Partners Ltd