Navigating New Zealand's Spending Downturn: Finding Value in Resilient Sectors

New Zealand's electronic card spending has entered its longest sustained decline in recorded history, with twelve consecutive months of year-on-year drops through March 2025. For consumer discretionary sectors like retail and hospitality, this paints a bleak picture. Yet within this downturn, opportunities emerge for contrarian investors: companies in tourism, utilities, and fintech are demonstrating resilience through structural advantages, pricing power, or strategic diversification. Here's how to spot undervalued stocks poised to thrive—or at least survive—amid the weakness.

Tourism: Betting on International Recovery

While domestic spending on hospitality fell 1.1% month-on-month in March 2025, international tourism offers a silver lining. As border restrictions ease and global travel rebounds, operators catering to overseas visitors are outperforming their domestic peers.

Take SkyCity Entertainment Group, a casino-hotel operator with a monopoly in Auckland. Despite weak local spending, its Q1 2025 revenue rose 18% year-on-year, driven by Chinese and Australian tourists returning to its gaming floors and luxury hotels. The stock trades at just 12.5x forward earnings—a discount to its five-year average of 15x—despite its fortress-like balance sheet (net cash of NZ$1.2 billion).

Investment thesis: SkyCity's pricing power in a regulated market and exposure to high-margin international tourists make it a rare growth story in a contracting sector. The stock could rebound as global travel demand surges further post-2025.

Utilities: Steady as She Goes

Utilities are the ultimate defensive play. Even as consumers cut back on discretionary spending, households and businesses still pay their electricity and water bills. Firms like Mercury NZ, a leading electricity retailer, have insulated themselves through regulated pricing frameworks and long-term contracts.

Mercury's Q1 2025 earnings rose 6% year-on-year, with residential customer retention hitting 92%—a record high. Its stock has underperformed the market by 20% since late 2024, despite trading at a 30% discount to its peers' average P/E ratio.

Investment thesis: With inflation fears easing and interest rates likely to drop by year-end, utilities are set to benefit from falling borrowing costs and stable cash flows. Mercury's dividend yield of 5.2% offers a compelling risk-reward trade.

Finance Services: The Rise of Fintech

The decline in discretionary spending has accelerated a shift toward cost-conscious, tech-driven solutions—right into the hands of companies like Unity Software (NZ). While not a household name, Unity's cloud-based payment processing platform is gaining traction with SMEs struggling to manage rising interest expenses.

Unity's Q1 2025 revenue grew 22% year-on-year, with its AI-driven cash flow analytics tools being adopted by 80% of new small-business clients. Despite this, its stock trades at a mere 18x forward earnings—a fraction of global fintech peers.

Investment thesis: Unity's focus on affordability and efficiency aligns perfectly with businesses under pressure from high mortgage rates and inflation. A potential merger with a larger financial services firm could unlock value in 2026.

Contrarian Playbook: When to Dive In

The key to success here is timing. The market has already priced in much of the pain from New Zealand's spending decline, but a few catalysts could trigger a rebound:

1. Mortgage Rate Cuts: The Reserve Bank of New Zealand is expected to reduce rates to 5.25% by early 2026, easing household debt burdens and freeing up disposable income.
2. Tourism Inflection Point: Visitor numbers to New Zealand are on track to hit 4 million by mid-2025—matching pre-pandemic levels—which could boost companies like SkyCity.
3. Utilities' Regulatory Tailwinds: New Zealand's push for renewable energy could award Mercury and peers higher tariffs for green infrastructure projects.

Entry Points:
- SkyCity: Buy dips below NZ$14.50 (current price NZ$15.20).
- Mercury: Accumulate on corrections below NZ$6.80 (current NZ$7.10).
- Unity Software: Look for a pullback to NZ$28 (current NZ$30.50).

Risks to Consider

• Prolonged Weakness: If mortgage rates stay high into 2026, consumer spending could stagnate further.
• Regulatory Overreach: New Zealand's Labour government may impose price caps on utilities, squeezing margins.
• Tourism Plateau: A slowdown in international arrivals due to global economic headwinds could reverse SkyCity's gains.

Conclusion

New Zealand's spending slump isn't a uniform disaster—it's a filter. Companies like SkyCity, Mercury, and Unity Software are leveraging structural trends, pricing power, and innovation to carve out growth. For investors willing to look beyond the headlines, these stocks offer a chance to buy resilience at a discount.

The time to act is now: with valuations depressed and macro headwinds priced in, these names could be among the first beneficiaries of a broader market recovery.

This analysis combines publicly available data with industry insights to identify opportunities in volatile markets. Always conduct further research or consult a financial advisor before making investment decisions.