Construction boom could act as ‘circuit breaker’ and drive the New Zealand economy out of recession, leading stock brokerage says

Equity analysts at Forsyth Barr say the list of projects up for a fast-tracked consent have the potential to give the downbeat economy a “much-needed injection of energy”.

In a note to clients, the brokerage firm welcomed the Fast-track Approvals Bill and the first 149 projects that will be included in it. New Zealand was “moving out of the slow lane” it said. 

“Paired with all but certain continued interest rate cuts, the contours of an economic recovery are starting to take shape,” they wrote on Tuesday. 

Kiwi stock market analysts generally pay minimal attention to Government policy, and even macroeconomics, as the performance of individual listed companies can be unrelated.

This makes it notable that the equity research team chose to publish a note endorsing the bill and outlining its possible benefits for a dozen NZX-listed companies. 

Of these, securing fast-track approvals could have a material impact on the Port of Tauranga, Mercury Energy, Precinct Properties, and Winton Land.

Kiwi Property Group, Genesis Energy, Manawa Energy, Sanford Limited, and Summerset would see a smaller boost. While Infratil and Fletcher Building’s projects weren’t big enough to impact their outlooks.

But analysts said the biggest beneficiaries would be building material companies, such as Fletcher Building and Steel & Tube, who will experience higher demand from the consents. 

Privately-owned businesses in these sectors will presumably also get a boost — although it is harder to measure the impact on unlisted companies.

Forsyth Barr said NZ had been in a deep per capita recession for almost two years and the August earnings season was the worst on record. 

“After the U-turn from the RBNZ, followed by its first interest rate cut in over four years, sentiment has improved. The 149 projects included in the fast-track approval process have the potential to build on this improved sentiment.”

Being included on the list doesn’t guarantee consent, as the expert panel will be able to decline projects, but it has been set up to favour fast approvals. Environmental factors will be considered but mostly addressed through consent conditions, rather than denials. 

The analysts’ note said construction only made up 6% of the NZ economy but it was highly cyclical and could have an “outsized role in driving an inflection point in the economic cycle”.

“Economic downturns need a circuit breaker. The main circuit breaker for New Zealand will almost certainly be materially reduced short-term interest rates, but the cumulative scale of the announced projects has the potential to elevate the impact.”

There were 44 housing projects with up to 55,000 new homes, 43 transport projects with 180km of new road and rail, 22 renewable energy projects, 11 mines, eight quarries, and seven aquaculture farms.

Specific winners 

Listed-property developer Winton will likely benefit the most from the fast-track as it breathes new life into the $1.7 billion mixed-use community called Sunfield in Takanini, Auckland.

Winton’s share price jumped more than 6.5% after the announcement of its inclusion in the Fast-track approvals bill. The development’s previous attempt at getting sign-off failed. 

This was one of the projects which sparked concerns over conflicts of interest. Winton director Christopher Meehan has donated more than $200,000 to the National and Act parties, and former minister Stephen Joyce serves on the company’s board.

Infrastructure minister Chris Bishop said any real or perceived conflicts of interest were carefully managed but he wouldn’t reveal any specific details.

Kiwi Property Group has also been working on a new town centre in South Auckland. This mega-project is located in Dury and could provide up to 22,000 homes. Forsyth Barr said having this fast-tracked was “helpful” but the project was already well advanced. 

Precinct Properties will be able to proceed more quickly with its $1.2 billion twin towers set to replace the Auckland Downtown Carpark building. 

Much of the Government’s sales pitch for Fast-track Approvals related to building more renewable energy generation and shifting more of the country’s energy away from fossil fuels.

Of the listed electricity companies, Mercury Energy had the largest proportion of its development pipeline included in the fast-track list. Meridian Energy missed out, despite likely submitting two major projects.

Energy Minister Simeon Brown said the 22 renewable electricity projects were worth three gigawatts of electricity, which would roughly be a 30% boost to grid capacity.

It has planned an open pit and underground gold mine in Central Otago which it says could contribute several billion dollars to the domestic economy over 10 years.