Chris Lee & Partners Ltd

Market News – 31 August 2026

Edward Lee writes:

The final week of August produced one of the busiest periods of the New Zealand reporting season, with results from Port of Tauranga, Genesis Energy, Summerset, Air New Zealand, Sky Television and Channel Infrastructure, alongside a particularly strong trading update from Hallenstein Glasson.

The overall picture was better than the headlines around the New Zealand economy might suggest. Several companies are producing higher earnings and cash flow despite weak economic growth, while others are beginning to benefit from cost reductions, stronger pricing and investment undertaken over recent years.

Port of Tauranga

Port of Tauranga produced one of the stronger results of the reporting season, with underlying net profit increasing 23% to a record $155 million.

Revenue increased 4.7% to $486 million and operating earnings increased 17.6% to $275 million. What makes the result particularly impressive is that it was achieved despite total trade volumes falling 3% to 24.6 million tonnes, and container volumes flat.

The improvement therefore did not come from a booming economy or rapidly increasing freight volumes. Instead, Port of Tauranga benefited from better pricing, productivity and cost control, with operating costs falling 6.2%.

Shareholders are also receiving more of the benefit. The full-year ordinary dividend increased 22.8% to 20.5 cents per share, including a final dividend of 12.5 cents.

Importantly, management expects further growth. Subject to trading conditions, underlying earnings for FY27 are forecast at between $160 million and $175 million.

Our view is that Port of Tauranga continues to demonstrate why high-quality infrastructure assets can perform well even when the economy around them is relatively subdued. The ability to increase earnings materially while volumes decline is particularly encouraging. If New Zealand export and import volumes eventually recover, the operational improvements made over the past few years should provide additional leverage.

Genesis Energy

Genesis Energy delivered a good result, with normalised operating earnings increasing 11% to $522 million and gross margin increasing 10% to $949 million. Operating free cash flow was particularly strong, increasing 24% to $322 million.

We like the way Genesis is transitioning. Management has set out a credible plan to progressively reshape the company, invest in new renewable generation and storage, strengthen the balance sheet and retain the flexibility provided by Huntly.

The company has completed its $400 million equity raising, reducing net debt, and is now embarking on approximately $3 billion of investment over five years.

This includes solar farms at Tihori and Leeston, the 271 MW Rangiriri solar project, the consented 220 MW Foxton solar farm and further wind development. The first 100 MW/200 MWh stage of the Huntly battery is being commissioned, while a second equivalent stage has reached final investment decision.

Importantly for shareholders, Genesis also continues to provide a strong income return. At current prices, the shares offer a gross dividend yield of approximately 7.70%, which remains attractive for an electricity company with a substantial investment programme and improving longer-term growth prospects.

Genesis has also been leading the electricity generators in terms of share price performance over the past 12 months. We think that reflects growing recognition that the company is no longer simply the owner of an ageing thermal generation portfolio. It is progressively becoming a more diversified electricity business, combining renewable generation, battery storage, retail customers and the strategic value of Huntly.

We like the management plan and believe the transition is heading in the right direction. New Zealand will require considerably more electricity generation as the economy electrifies. Genesis is investing directly into that demand while maintaining a strong dividend for shareholders.

Summerset

Summerset's result requires slightly more interpretation.

IFRS net profit increased 92% to $171 million, although underlying profit fell 3% to $103 million. Revenue increased 16% to $200 million.

The operational numbers were more encouraging. Total sales increased 17% to 813, including a 12% increase in new sales and a 23% increase in resales. Resale stock has fallen to just 2.2% of the portfolio, its lowest level since the first half of 2022.

Cash flow from existing operations increased sharply from $7.9 million to $31 million, although this remains an area management wants to improve further.

Summerset has responded to the economic environment by moderating its development programme. It delivered 481 new homes during the half and remains on track for 700 to 800 for FY26, but intends to hold its medium-term group build rate at around 600 to 700 homes annually.

The company has also increased its New Zealand deferred management fee to 30%, which it estimates will produce approximately $35 million of additional cash flow over five years. It is targeting net debt below $1.9 billion and gearing of 33% by the end of 2027.

We think this is sensible. The long-term demographic case for retirement villages has not changed, but Summerset's greater emphasis on cash generation, development margins and balance sheet management should ultimately create a better business.

Hallenstein Glasson

Hallenstein Glasson produced a standout trading update of the week.

Group sales for the year ended 1 August increased 19.6% to $563 million. Even after removing the benefit of currency movements, sales increased 15.6%.

More importantly, profit has grown considerably faster than sales. The company expects pre-tax profit of between $83 million and $84.5 million, approximately 43.5% higher than the previous year's $58.4 million.

That tells us margins have improved significantly.

The balance sheet remains strong and inventory is described as well controlled, which is important for any fashion retailer. Excess inventory and discounting can destroy margins pretty quickly.

The share price responded accordingly, increasing more than 8% following the announcement.

Sky Television

Sky Television delivered a good result, with underlying revenue increasing 9% to $826 million and operating earnings increasing 6% to $157 million. Underlying net profit increased 2% to $41.8 million.

The final dividend was increased to 17 cents per share, taking the full-year distribution to 32 cents per share, 45% higher than FY25. Sky also intends moving to quarterly dividends during FY27.

Perhaps more important for income investors is what comes next. Sky is targeting dividend growth of 10% per annum over the next three years. It has already indicated a dividend of at least 35 cents per share for FY27.

At the current share price, Sky offers one of the highest gross dividend yields available on the New Zealand sharemarket at 12.50% gross. Further 10% annual increases would make the income proposition increasingly attractive, particularly if earnings and cash generation continue to support those distributions.

The company has also extended its English Premier League rights through to 2034, providing long-term certainty over one of its important sporting assets. Neon now has more than 252,000 subscribers despite losing HBO content, while the acquisition of Three provides Sky with greater scale across free-to-air television, advertising and digital audiences.

Management expects FY27 revenue of between $825 million and $840 million and operating earnings of between $155 million and $165 million.

We like the direction Sky is heading. The business is generating cash, returning more of that cash to shareholders and has provided investors with a clear path towards further dividend growth.

The move to quarterly dividends should also make the shares more attractive to income-focused investors. For investors looking for yield, there are few companies on the NZX currently offering the combination of Sky's starting yield and prospective dividend growth.

If Sky delivers the 10% annual dividend growth it is targeting over the next three years, shareholders could receive a substantial proportion of their investment back through cash distributions alone, before considering any further movement in the share price.

Channel Infrastructure

Channel Infrastructure continues to develop into aninteresting infrastructure company.

First-half revenue increased 4% to $72.9 million and operating earnings increased 1% to $48.8 million. Normalised operating cash flow was $33.6 million, while the interim dividend increased 16% to 7.25 cents per share.

The company also increased FY26 operating earnings guidance to between $103 million and $108 million.

The important development is the continuing conversion of the Marsden Point site into contracted storage and energy infrastructure. New storage agreements are increasing utilisation of existing assets without requiring the company to recreate the risk profile of the former refinery.

The market liked the result, with Channel shares rising nearly 7% on Friday.

We continue to see merit in Channel's strategy. New Zealand's geographical isolation means fuel storage and supply security have strategic value. If Channel can continue securing long-term contracts using infrastructure that is already largely in place, returns on incremental investment could be attractive.

Air New Zealand

Air New Zealand remains one of the weaker investment propositions on the NZX and, in our view, has a significant amount of work ahead of it.

Revenue increased 3.9% to $7.0 billion and passenger revenue increased 4.8% to $6.1 billion, but the airline still reported a pre-tax loss of $336 million.

The external pressures remain substantial. Higher fuel prices reduced the pre-tax result by an estimated $135 million after hedging, fare changes and capacity reductions. Engine availability issues cost approximately $190 million, while maintenance expenses increased by $139 million.

The competitive position also needs attention.

Jetstar continues to build its domestic presence and is increasingly capable of taking market share on price-sensitive routes. At the same time, major international airlines continue to invest heavily in premium cabins, lounges, service and loyalty, raising the standard Air New Zealand must meet if it is to retain higher-value customers.

That is particularly important because Air New Zealand will almost certainly need to keep pushing fares higher.

Engine disruption, maintenance costs, fuel prices, airport landing charges and other aviation system costs are all putting pressure on margins. Air New Zealand disclosed that its share, together with customers, of aviation system charges reached $1.2 billion during FY26, with approximately $720 million recognised as an expense by the airline.

Higher fares can support earnings, but only if customers believe they are receiving sufficient value in return. That places even greater importance on the quality of the product, particularly premium cabins and the Airpoints loyalty programme.

Airpoints remains an important competitive asset, but in our view it still requires considerable refinement. International airlines are becoming more sophisticated in how they reward frequent travellers, recognise status and use loyalty programmes to retain high-value customers. Air New Zealand needs to keep developing its offering if it wants to maintain pricing power and customer loyalty.

The engine problems will eventually ease, but that alone will not solve the wider issues.

Air New Zealand needs to improve its domestic competitive position, continue investing in its premium product, strengthen Airpoints and find a way to absorb a much higher structural cost base without continually asking customers to pay more.

Air New Zealand is an important airline and a strong national brand, but the investment case remains far less attractive than many other opportunities available to investors. Until margins recover, the product improves and the airline demonstrates that it can defend its domestic and premium market positions, we see little reason to change that view.

A useful reporting season

Perhaps the most interesting conclusion from this reporting season is the divergence occurring within the New Zealand sharemarket.

Economic conditions remain difficult, but that has not prevented Hallenstein Glasson from increasing expected pre-tax profit by more than 40%, Port of Tauranga from increasing underlying profit 23%, Genesis from lifting normalised operating earnings 11%, or Channel Infrastructure from increasing its dividend and earnings guidance.

These companies are not relying on strong economic growth. They are improving margins, controlling costs, allocating capital more carefully and, in several cases, strengthening their balance sheets.

That is important for investors.

Sharemarkets normally begin recovering before the economic data looks particularly attractive. If interest rates eventually ease and domestic activity improves, companies that have already strengthened their operations during the difficult period should be well positioned to benefit.

The reporting season therefore reinforces our preference for companies with pricing power, good cash generation, manageable debt and assets that would be difficult or expensive for a competitor to replicate.

We particularly like the direction of Genesis, where management is successfully transitioning the business while continuing to provide shareholders with a strong income return. Sky Television is also becoming increasingly interesting for income investors, particularly if management delivers the 10% annual dividend growth it is targeting.

Air New Zealand sits at the other end of the spectrum. The airline has considerable work ahead of it to restore margins, improve its competitive position and bring its customer proposition closer to what leading international airlines are now offering.

For investors prepared to look beyond the economic headlines, there are increasingly some interesting opportunities emerging on the NZX.

Christchurch Seminar

Following our recent investor seminar at Southward Car Museum in Paraparaumu, we are pleased to confirm that we will be holding our next seminar in Christchurch.

The seminar is open to both existing clients and other investors and will be held at Burnside Bowling Club at 11:00am on Thursday, 17 September.

We will discuss the current investment environment, recent developments across New Zealand and international markets, risk management, and some of the companies and sectors we are currently watching closely.

If you would like to attend, please contact us by email to reserve a place.

Travel

8 September – Ellerslie, Auckland – Edward Lee

9 September – Albany, Auckland – Edward Lee

22 September – Lower Hutt – David & Gavin

25 September – Palmerston North – David & Gavin

Edward Lee

Chris Lee & Partners Limited

Market News 24 August 2026

Johnny Lee writes:

Reporting season is continuing to exceed expectations, as the index continues to flirt with the 14,000 mark.

The full year result from EBOS (EBO) was a positive one, with revenue climbing 10% and earnings up 5%. The dividend was maintained at 61.5 cents per share. This was in line with previous guidance.

EBOS story has long been one of tailwinds and trends: ageing populations, rising demand for healthcare services, new healthcare products and changing attitudes towards animals and pet ownership.

In the pharmacy space, revenue continues to climb, despite rising competition. Demand for GLP-1 (type 2 diabetes and obesity medication) products was again highlighted as a major driver, as well as productivity gains from its expanding distribution centres.

Hospital consumable demand also saw modest growth, as well as demand from aged-care customers.

Animal care continues to be a small but growing part of the EBOS base, with revenue climbing 35%. Part of this has been acquisition driven, but underlying growth has been strong as well.

The seemingly endless array of various speciality pet food products remains in high demand, including from its most recent acquisition, Paringa.

Paringa is a food delivery service for cats and dogs, currently based in the Sydney metropolitan area. It also services the Taronga Park zoo in Sydney.

The balance sheet remains in a healthy state. It is expected to improve further as the company migrates from a period of heavy investment in distribution centres, to more stable, long-term capital expenditure settings. 

Going forward, the company is forecasting continued growth, both organic growth from existing businesses, and inorganic from new acquisition opportunities.

The loss of the Chemist Warehouse contract was a heavy blow for EBOS and contributed to the significant decline in share price seen over the last twelve months. The company had highlighted that this year would be one of expenditure and minimal growth, leading to a generally depressed share price throughout the year.

Last week’s announcement led to a modest rebound in the share price of EBOS, up 9% on the day.

----------

Spark’s (SPK) announcement was perhaps one of the most anticipated this reporting season, as shareholders feared a continuation of the downward slide observed over the last two years.

Instead, Spark confirmed its previous guidance, including stable revenue, a modest earnings decline and a significant increase in free cash flow, the key metric used for dividend payments. The dividend was maintained at 8 cents, bringing the annual total to 16 cents, with partial imputation. Guidance for next year includes a range of 16 to 18 cents.

Spark’s story continues to be one of asset sales, cost management and a “focus on what we do best”. Indeed, the presentation once again mentioned that Spark’s renewed focus is on creating “stable, annuity-like returns” with “predictable free cash flow and growing dividends”. 

Asset sales were defined as “the logical next step” for Spark. Spark had already announced a strategic review of its Digital Services arm, and while the company reiterated that no outcome has been pre-determined, it seems clear that a fair price could mean further asset sales within the next year.

Further cost savings are expected in the years ahead. While labour reductions will of course see the most headlines, Spark is also planning for further cost reductions from the exit of legacy products, with both its voice product and its IT Service Management platform highlighted as opportunities for savings, as the product suite simplifies.

Core net debt fell 35% and is now at much healthier ratios. This has largely been achieved by the various asset sales seen over the last few years, including the data centre business sale confirmed in January.

Guidance for next year is for a similar level of earnings, a reduction in expenditure, and a modest increase in free cash flow.

Spark has struggled over the last two years, with the share price declining from over $4 a share to where it now sits around $2.15. The dividend has fallen, and the calculation used to determine this dividend has changed. 

Spark management and board now have the job of executing its SPK-30 strategy, meeting its guidance and presenting a clear, credible picture of what Spark will look like in the long-term. Judging by the early share price response, the full year result has restored some small degree of confidence from investors, ahead of a busy 2027 for the company.

-----------

A number of our largest companies, including Mainfreight (MFT) and Port of Tauranga (POT), issued “Shareholder Register Release” notifications last week.

A Shareholder Register Release is used when a third party requests a list of all shareholders in a specific company. Both Mainfreight and Port of Tauranga requested permission from the regulator to withhold the information, and both were denied and were not able to refuse the request for the information.

The company requesting the information is Worthington Clark Pty Limited. It is not entirely clear why an Australian commercial asset recovery business would seek such a list, but New Zealand’s history with third party approaches has engendered a strong sense of caution from the financial advisory sector.

None will forget the “low-ball offers” of the 2010s, when certain groups acquired shareholder lists and wrote to investors, offering discounted or delayed payments for their shares, “earning” millions due to the gap between the value offered and the true value of the shares. Every financial advisor has heard horror stories of people signing away shares for pennies in the dollar, oblivious to the true value of their holdings.

Issues like unclaimed dividends are very straightforward problems to resolve in 2026. This is often caused by invalid bank details, perhaps coupled with a change of address. Unclear estate management can also cause issues with shareholdings. Our share registries, Computershare and MUFG, are well equipped to sort out such matters.

Any shareholders who receive requests from third parties, including Worthington Clark, should of course seek financial advice before signing any documentation. 

_ _ _ _ _ _ _ _ _ _

Travel

Johnny Lee - Taupo - 1 September

Johnny Lee - Hamilton - 2 September

Johnny Lee - Tauranga - 3 September

Johnny Lee - Christchurch - 7 September (FULL)

Chris Lee & Partners Limited

Market News 17 August 2026

Johnny Lee writes:

Vital Healthcare has published its full year results, posting an increase in distributable profit as it completed its first year since the buyout of its management contract. Vital Healthcare owns a portfolio of hospitals and healthcare facilities across New Zealand and Australia.

Vital raised $220 million from its shareholders last November, as part of its plan to buy out Northwest as the manager of the Trust for $214 million. Management fees totalled over $17 million in FY25, and over $24 million in FY24, before being bought out by Vital. This $214 million was later determined to be fully deductible for income tax purposes, resulting in a net payment nearer $180 million.

One of the main attractions to Vital as an investment prospect is the very long-dated nature of its income. Its tenants (healthcare facilities) sign extremely long leases, with over 80% of its leases not due to expire for another 10 years. This leads to predictable, known income, with flows through to predictable, known dividends.

Gearing improved modestly and now sits under the 40% mark. This was driven by both the balance of the equity raise, and modest revaluation gains. Net Tangible Assets fell, although this was largely due to the capital raise: the 16% increase to net assets was outweighed by the 19% increase in number of shares on issue. 

Building new and developing existing facilities remains a key pillar of its current strategy. Three developments concluded this year, including the refurbishment at Boulcott Hospital in Lower Hutt. 

Guidance remains unchanged. The company expects another annual distribution of 9.75 cents per unit, as it continues to navigate its development pipeline. Longer-term, it hopes that distributable income will climb, as these developments complete and leasing activity commences.

Overall, it was a year of significant change for Vital. The buyout of its management contract has resulted in significant long-term cost savings. Vital continues to use its balance sheet to target long-term income growth, as it looks to improve occupancy at its most recent developments, and continue pre-leasing its upcoming projects.

--------------

A2 Milk’s result left the market disappointed, as the company reported a modest decline in net profit.

It is worth noting the wild ride the share price has endured this year. It began the year around $10.50, soared to almost $12, halved to $6, then rallied back to $8.20 prior to the full year announcement. The price has since fallen 10% to $7.40 after the results were announced. 

Sales remain strong. The Asian segment climbed 11%, Australia and New Zealand rose 10% and the US business finally began to gain traction, up 28%. The weaker New Zealand dollar also helped. 

The company continues to see positive signs out of Chinese birth rates. A modest increase in Chinese marriage rates, considered a key leading indicator, is expected to lead to a rebound in newborns. 

A2 notes that although market share weakened, this was being largely driven by a lack of supply. Consumers were choosing to use alternative brands due to the lack of product on the shelves, an issue the company was actively working to resolve. 

This lack of supply was being caused by an unusually high level of demand depleting existing stocks, “freight challenges”, Synlait production issues and additional customs requirements. 

The balance sheet remains in a strong state, despite the capital return earlier this year. The company has over $700 million in cash, allowing it to increase its dividend to 9.5 cents per share for the 6 months. This brings the full year dividend to 21 cents (ignoring the special dividend), up from 20 cents.

Outlook was cautious, with the company highlighting the supply chain difficulties it is currently experiencing. It expects the half year result, due in February, to reflect this, before seeing more meaningful improvements in the second half of the financial year.

A2 Milk is planning a further update in mid-November, where it hopes to have an update to the current supply chain difficulties it is currently navigating.

---------------------

Freightways, the owner of various commercial brands including New Zealand Couriers and Post Haste, has also published its results, with rising profits leading to rising dividends.

Revenue climbed 13%, profit was up 17% and the dividend rose 12%. Despite this, the share price eased after the announcement, down 5%.

The full year result from Freightways acted as a reminder of the year that was – a clear upward trend for the first half, before a sudden deterioration following the conflict in the Middle East.

For Freightways, the sharp increase in fuel prices in March led to a notable consumer response, noting “current demand has not returned to pre-Middle East war levels”. 

Gearing climbed throughout the period, reflecting the acquisition of VT Freight Express in December. Gearing now sits at 35% excluding lease liabilities, within the company’s targets.

The 6-month dividend climbed to 24 cents per share, up from last year’s payment of 21 cents. 

Looking forward, development at the Christchurch Airport facility and Palmerston North Airport facility is progressing. Both are expected to complete by the first half of next year. 

The company is also looking at further acquisition targets in Australia. Freightways has explored over 70 such opportunities and is actively considering making such acquisitions in the medium-term.

Overall, despite the positive performance, the company’s outlook was middling. Freightways is realistic about the impact of higher fuel prices on consumer demand, having observed a strong demand response mid-year. This year, Brent crude has swung from $60, to $110, to $70 and now sits around $88 a barrel. Freightways will be hoping for some degree of normalisation by the end of the year.

-----------------

David Colman writes:

Auckland’s long awaited City Rail Link (CRL) will open officially on 13 September.

The massive inner city infrastructure project opening has the potential to revitalise a city that has been hampered by the project itself.

Underground rail is commonplace in cities around the world and provides a safe, fast and frequent public transportation option and the CRL is expected to significantly increase Auckland’s transport capacity.

The completion of the project will also mean the multi-year disruptions above ground which included the blocking of roads and footpaths as the tunnels were bored, tracks were laid, and stations were built will dissipate.

Visitors to Auckland in recent years have had to navigate these obstacles and, much like Christchurch following the 2011 earthquakes, visitor impressions can affect tourism numbers as word-of-mouth describing mesh fences, endless orange cones, blocked streets and noisy construction sites deters travellers away from the city.

The New Zealand International Convention Centre (NZICC) opened in February, new train stations in Drury and Paerātā opened in August, and Auckland Airport’s terminal integration is scheduled for completion by 2029 which should result in Auckland being viewed more positively by visitors and residents alike.

Auckland is a massive driver of growth for New Zealand (a third of New Zealanders live there) and the opening of the CRL in conjunction with these other projects is ideally helping provide some much-needed economic momentum for the city and by extension the country.

_ _ _ _ _ _ _ _ _ _

Travel

Johnny Lee - Taupo - 1 September

Johnny Lee - Hamilton - 2 September

Johnny Lee - Tauranga - 3 September

Johnny Lee - Christchurch - 7 September (FULL)

Markets News 10 August 2026

Johnny Lee writes:

Contact Energy’s annual result was announced this morning, bringing both rising earnings and rising dividends.

Earnings rose 31%, while profit climbed 62%. The September dividend of 24 cents is a cent higher than last years, while also enjoying a higher level of imputation. The dividend is forecast to rise again next year, from a 40 cent full year dividend (24 and 16) to 42 cents per share.

Progress continues at Contact. The synergies between Manawa and Contact have now been achieved, while the development pipeline continues to be utilised as new demand emerges.

Perhaps the most interesting part of the announcement was that of a potential major new data centre, to be developed in Stratford. The data centre would be designed and owned by CDC Data Centres, with electricity supplied by a long-term agreement with Contact. At this stage, the data centre remains in the concept stage, with each group “exploring” the possibility.

The data centre, initially scoped for a 250MW size, would be similar in size to the “AI Factory” data centre proposed for Makarewa, by Datagrid. Interestingly, a key aspect of the Southland data centre was the fibre connectivity introduced by the planned “Tasman Ring Network” of subsea cables. The TRN initially included three other landing spots across New Zealand – Auckland, Greymouth and New Plymouth.

The electricity generators have long suggested that data centres would play a major role in future electricity demand. Contact has suggested that a large solar farm and a very large battery installation would be utilised for the facility.

Indeed, Contact highlighted the “shape” of the demand as a major benefit. Data centres use more power during the summer to cool down, while New Zealand retail demand tends to spike in winter, as we reach for the heaters.

The two companies involved, Contact and CDC, share a significant shareholder in Infratil Limited. Infratil reduced its stake in Contact back in May this year, while also agreeing not to reduce it further until the announcement of Contact’s full year results (today). This “overhang” will hopefully resolve itself soon, as Infratil makes its intentions clearer.

There was also a snippet in the full year results of interest to bond investors. Contact has confirmed that it intends to redeem the Capital Bond, CEN060, in November this year. It then intends to issue a replacement bond. CEN060 was a $225,000,000 issue. With the lack of primary issuance of late, this will be welcome news for those with surplus investible capital.

Overall, the announcement was well received by the market, with the share price rising 1%. Progress continues, and new projects are emerging to help firm up the demand for New Zealand electricity.

--------

The unemployment rate continues to creep higher, with 5.6% of New Zealanders now classified as unemployed.

It marks the highest level in 11 years. Unemployment continues to be heavily biased against the North Island, with a figure of 6% in the North and 3.7% in the South. Women also saw a lower unemployment rate, a more recent trend in our unemployment statistics. 

The employment rate was steady at 66.7%, despite the rise in unemployment. The discrepancy between the two statements is reflected in the participation rate, or the proportion of New Zealanders actively looking for work, which climbed.

The result was broadly expected, only marginally higher than economist expectations. Many expect the weaker than expected job creation to be spurred by renewed uncertainty from employers around tariffs and fuel costs, factors that may improve by the time of the next data release.

Accordingly, the market broadly took the result in its stride. Market pricing continues to imply several rate hikes over the next twelve months, with the RBNZ next meeting on 2 September.

--------

The announcement from ANZ, confirming its intention to buy back the $600 million of its listed Subordinated Notes (ANB170), will not have caught informed bondholders by surprise. The notes will be repaid on 17 September and total $600 million.

These securities were part of the round of Tier 2 Capital raised in 2021, with the ANB170 paying 2.999% for a ten-year period. Like many of these Tier 2 issues, it carried a prescribed option for the ANZ to redeem the notes after 5 years. This option has now been exercised.

Due to the relatively low coupon carried by these notes, the early redemption will be welcomed by long-term noteholders, who can now secure higher returns than those seen five years ago when this product was launched. Indeed, comparable products trade nearer to 5% on the secondary market today.

Since the most recent capital setting review from the RBNZ, this style of issuance (Additional Tier 1 and Tier 2) has been the topic of some discussion, as funding was driven in-house and AT1 was signalled to be removed from the “capital stack”. 

The Perpetual Preference Shares, listed on the NZDX, are one such example of Additional Tier 1 Capital.

Additional Tier 1 Capital was created to act as a buffer between certain debt (including Tier 2 Capital), and shareholders, in the event of a bank failure. That is to say that, after wiping out all shareholder equity, AT1 Capital Preference Shareholders would be next in the firing line, if necessary, to repay higher ranking debt holders.

The Perpetual Preference Shares issued so far have carried an optional redemption date, giving the issuer the right to repurchase the bonds at par. With the exception of COVID, which saw delays in repayment, all these issues have repaid at the first available redemption date.

In practice, this means that the Perpetual Preference Shareholders have received a modestly higher return and have been repaid as expected. For some, like ANZ, BNZ and Kiwibank, this has meant continued issuance and high levels of demand for such products, reflecting the trust earned.

With the most recent RBNZ review, AT1 capital is being phased out for the major banks, with the new Capital Standards beginning on 1 December 2028. New AT1 capital instruments cannot be issued by this group after 1 October of this year.

This change has triggered the “Regulatory Event” clause of the Preference Shares and presented the option for the banks to redeem them early. Such an early redemption could affect the likes of ANBHD, BNZHA, BNZHB, KWBHB and WNZHA. The issuers of these securities have already indicated to market that an early redemption is being considered. The sum of these five issues is $1.75 billion.

For most holders, such an early redemption would not be anything beyond inconvenient. These holders have enjoyed outsized returns and have had their principal returned, albeit earlier than anticipated. 

The future of capital requirements will no doubt continue to evolve, as the RBNZ tries to strike a balance between resilience and efficiency. These instruments were created to help the banks adhere to a set of rules, and these rules are undergoing constant evolution. For now, new issuance seems less likely, and bondholders should consider their liquidity needs ahead of the 17 September date.

--------

David Colman writes:

Japan and the USA proved to the world how closely linked their financial fortunes are with a rare, coordinated currency intervention.

On 31 July, Japan’s Ministry of Finance purchased Japanese yen in coordination with the U.S. Department of the Treasury.

It is estimated that the Bank of Japan bought approximately US$50 billion worth of yen and the New York Federal Reserve sold euros and bought up to US$10billion worth of Japanese yen which was at a near 40-year low against the US dollar.

Loose monetary policy epitomised by low interest rates set by the Bank of Japan has eroded the yen’s value in US dollar terms for years.

Japan imports 90% of its energy needs, such as oil, natural gas, and coal, so the yen has been particularly sensitive to elevated commodity and fuel costs of late.

The Japanese currency is no longer viewed as a safe haven currency like it once was.

The joint currency intervention by two of the largest and most influential global economies provided a clear example of intervention risk - the risk that large, powerful institutions such as governments and central banks will intervene in a particular market.

The last time coordinated currency intervention occurred by the two nations was in 2011 when the Japanese yen was sold in a response to it surging in value after the Great East Japan Earthquake (the tsunami of which inundated the pacific coast of the Tōhoku region critically damaging the Fukushima Daiichi power plant). The case for intervention then was to restrain Japanese selling of their overseas investments to raise cash (in yen) during a crisis. One US dollar could buy about 77 JPY in 2011, less than half the 155 JPY it can buy today.

Last week’s intervention was not tied to a major natural disaster despite coincidentally a significant, seismic event in Kumamoto, Japan occurring the same week.

The Japanese Finance Minister Satsuki Katayama revealed that both countries had bought yen in line with a Japan-USA currency alliance.

At odds with the intervention, a joint statement from the countries’ respective finance ministers in September last year reaffirmed their view that exchange rates should be market-determined so the intervention was a shock to global foreign currency traders who will now have to factor in that two sovereign states are determined to protect the yen. 

The defence of the yen was accompanied by warnings to speculators that the alliance will use aggressive measures to halt further falls in the yen in a bid to stabilise exchange rates.

The yen had fallen to about 164 to the US dollar before the intervention perhaps identifying a level that will not be tolerated by the alliance.

For New Zealanders the intervention is expected to have some ramifications as the USA and Japan are New Zealand’s 3rd largest and 5th largest trading partners respectively.

A stronger and protected Japanese yen will be beneficial to exporters to Japan but would be expected to make the cost of imports to New Zealand from Japan higher.

New Zealand exports to Japan include dairy products, fruit, aluminium, meat, and timber with imports from Japan including vehicles, machinery, fuel, and electronics.

The U.S. backed purchasing of the yen was funded by selling Euros which might have been designed to keep overall USD strength. Typically, the currency used to prop up the value of another currency is weakened.

U.S. Treasury Secretary Scott Bessent intended the intervention to strengthen the yen and in turn keep other Asian currencies from weakening by limiting incentives for Asian countries to devalue in competition with each other. He emphasised that the intervention was a strong signal to speculators but noted that fundamentally Japanese adjustments to monetary policy and fiscal strategy will be required to provide ongoing support for the yen.

A major factor and a key catalyst for the joint intervention was that the Bank of Japan has kept interest rates low which has pushed the yen to 40-year lows against the US dollar.

The U.S. Treasury is fearful that if the Bank of Japan requires US dollars to defend the yen’s value then it and other Japanese Financial Institutions will seek to sell US Treasuries.

Japan is the largest holder of U.S. debt outside the USA with over US$1.1trillion in U.S. Treasuries and if a decision is made by one foreign country to sell U.S. debt then it is possible other countries may follow suit.

If U.S. Treasuries are sold off more aggressively it would result in higher interest rates for the U.S. Treasury and by extension higher global interest rates for businesses and consumers with corporate borrowing rates and mortgage rates likely to climb further in such a scenario

10 year U.S. Treasury yields have risen sharply since the initial U.S./Israel strikes on Iran in late February from slightly below 4.00% to over 4.65% today.

Current yields are close to levels not seen since before the 2007/2008 Global Financial Crisis  -the US 10 year treasury rate was last above 5.0% in 2007 before plummeting and staying lower (generally below 3%) throughout the 2010s.

Tariffs that are seen as barriers to trade, geopolitical events that have caused higher energy prices, and US Government spending far exceeding tax revenue are all global inflationary pressures and are impacting the longer-term outlook for interest rates.

--------

Travel

Johnny Lee - Taupo - 1 September

Johnny Lee - Hamilton - 2 September

Johnny Lee - Tauranga - 3 September

Johnny Lee - Christchurch - 7 September

Market News 3 August 2026

Johnny Lee writes:

Spark

Spark Limited looks set for a further change, as the company gears up to begin another restructure.

The restructure will look to divide the company into two divisions. The first, Connectivity, will represent the core business of Spark. This includes mobile, broadband and its business arm.

The second division, Digital Services, would encompass “beyond the core” elements of Spark, including its cloud and IT services.

At the same time, Spark announced a strategic review of the new Digital Services brand. While Spark did not commit to a sale of the division, the review was being undertaken to “maximise shareholder value”. 

The review is expected to conclude early next year. The interim head of this division, Greg Clark, has since announced he will be leaving the firm at the end of the year. 

Assuming the review results in a sale of its Digital Services division, the next step would be a determination by the board as to the best use of its proceeds. Recent asset sales have led to significant debt reduction.

The market responded positively to the announcement, with the share price rebounding around 20 cents per share. So far, Spark’s share price seems to respond more positively to announcements which undo initiatives, rather than those that create initiatives.

Separately, Spark also affirmed its previous guidance, ahead of its financial results to be released on August 20. Free cash flow is still expected to total between $290 million and $330 million. At a midpoint, this implies a full year dividend of around 8 cents per share, bringing the total annual dividend to around 16 cents per share.

It has been a lousy few years for Spark. A combination of poor strategic decision-making and a difficult trading environment has led to significant declines to both the share price and the dividend. Its result announcement on 20 August will need to instil confidence in shareholders that the long-term plan, SPK 30, remains on track and that the company has finally found its footing.

2 Cheap Cars

2 Cheap Cars, formerly NZ Automotive, is heading back to private ownership, five years after listing on the exchange.

Its majority shareholder, Yusuke Sena, also known as David Sena, has formally offered to buy back the shares he does not already own. Mr Sena already controls around 77% of the existing shares.

Sena also acts as the company’s chief executive.

NZ Automotive listed in 2021 as a compliance listing. A compliance listing means that the company did not raise capital, instead listing as a way to introduce external shareholders and provide liquidity for existing shareholders.

NZ Automotive operates a series of 10 dealerships across the country under the 2 Cheap Cars brand. Four of these are outside of Auckland, including Hamilton, Tauranga, Christchurch and Wellington (in Lower Hutt).

A large placement occurred shortly after listing, as shareholder Eugene Williams sold 9.3% of the shares on issue, about 20% of his holding, at 93 cents per share. The company’s announcement at the time stated that the purpose of this sell down, which raised approximately $4 million for Mr Williams, was to improve liquidity in the company’s shares.

A few months later, the company was ensnared in further drama following mass resignations across its board, including the resignation of Mr Williams. This was put down to a “fundamental breakdown of trust” and “irreconcilable differences”. The CEO, David Page, also tendered his resignation, shortly followed by its auditor, Grant Thornton, resigning from its role.

The share price collapsed to 44 cents and eventually reached a low of around 23 cents. 93 cents was never seen again.

But the company survived. Its two largest remaining shareholders, Sena and Williams, agreed to a transaction where Sena would acquire William’s remaining holding at 32 cents per share, which was subsequently approved by shareholders. 

Its new CEO Paul Millward then resigned, leading to Sena taking over the CEO role in 2024.

Now, Mr Sena is aiming to take the company private by buying back all the remaining shares at 80 cents each. In recent media interviews, he has expressed the view that the company should never have been publicly listed, stating that the company was not suited for public ownership. 

On this point, he is undoubtedly correct. With a market capitalisation of around $36 million and a full year profit that has ranged from $3 million to $6 million in recent years, the costs of being listed were difficult to justify. This does not just refer to the actual fees associated with the NZX, but also the time and energy required to adhere to the standards expected of a publicly listed company. 

Realistically, with over 75% of the shares tied up long term in the CEOs control, there were few benefits remaining for the retail shareholders, and a takeover was the cleanest way of writing the final chapter of 2 Cheap Cars’ story as a listed company.

Two main lessons should be taken from this affair.

The first is the value of investing in very small companies. Investing in these microcaps can be hit and miss, and has proven to be more miss than hit of late. Many have elected to simply leave the exchange, leaving minority shareholders without a platform with which to trade their shares. In this instance at least, Mr Sena is buying out the remaining shareholders.

The second lesson is the caution required when purchasing shares in a company with a single, very large shareholder. Such investors must ensure that their values and financial goals align with those of the majority shareholder – a rule that applies across the market, whether one is considering Meridian Energy or Winton Land.

Assuming it meets 90% acceptance threshold, 2 Cheap Cars intends to make payment by 24 August. Acceptance of the offer must be done online and is unanimously recommended by the independent directors.

Precinct Convertible Notes

Last Monday, this column discussed the upcoming conversion of the listed Precinct Convertible Notes, PCTHB. This led to some discussion from clients regarding the optimal strategy ahead of the possible conversion of these notes into ordinary shares, as we approach the 21 September conversion date.

Precinct, of course, has the right to repay these bonds in cash, rather than convert them into shares. Such a cash conversion would cost the company $65 million, being the number of PCTHB on issue. The first issue, PCTHA, converted to shares.

Last Thursday, Precinct announced it had raised $65 million via a five-year wholesale bond issue, to “refinance upcoming maturities.” 

A cash repayment of the PCTHB would be most welcome.

Travel

David Colman - New Plymouth - 7 August

Edward Lee - Auckland (Ellerslie) - 6 August

Edward Lee and Gavin Parkes – Wellington – 10 August

Johnny Lee – Taupo – 1 September

Johnny Lee – Hamilton – 2 September

Johnny Lee – Tauranga – 3 September

Johnny Lee – Christchurch – 7 September