Dairy decline pulls market lower; A2 leads the way

New Zealand shares fell with A2 Milk leading the market down as investors speculated further earnings downgrades may be on the horizon.

Tuesday, September 29th 2020, 6:33PM

by BusinessDesk

The S&P/NZX 50 Index fell 60.2 points, or 0.5 percent, to 11,742.09. Within the index, 23 stocks fell, 20 rose and seven were unchanged. Turnover was $177.7 million.

Dairy stocks led the decline as A2 Milk Co dropped a further 4.9 percent to $15.84, adding to its 9.7 percent fall yesterday.

Brad Gordon, an investment adviser at Hobson Wealth Partners, said the market was sceptical the company will achieve its full-year guidance of $1.8 billion after downgrading its first half sales forecast to a mid-point of $750 million.

“That implies second half earnings of $1.1 billion — that’s a big jump,” he said. “The market fears another downgrade basically.”

Investors were unlikely to believe the second-half forecast until it is reiterated at the company’s annual general meeting in November, Gordon said.

A2’s key supplier, Synlait Milk dropped 3.4 percent to $5.41 with investors concerned processing volumes would be affected by its biggest customer’s sales downgrade.

“I think the market might be misjudging that somewhat, I don’t think they are quite the same beast,” Gordon said.

Meridian Energy fell 1.8 percent to $4.865, a 9-cent fall, after shedding an 11.2 cent dividend. Other electricity utilities also declined: Genesis Energy slipped 1.9 percent to $2.90, Mercury NZ was down 1.2 percent to $5.03 and Contact Energy dropped 0.3 percent to $6.63.

Fisher & Paykel Healthcare was also down 0.6 percent at $33.50, further weighing on the index.

“If Fisher & Paykel Healthcare and A2 Milk are down, it’s a big load to carry for the rest of the market,” Gordon said.

Chorus posted the day’s biggest gain, rising 2.5 percent to $8.72 after a recent bout of weakness. Gordon said it was likely investors were chasing stocks offering a yield in place of bonds.

“Some of these corporate bonds now are trading with less than 2 percent yield for seven years, it is just incredible how tight the market is,” he said

Air New Zealand rose 1.1 percent to $1.38 after holding its annual general meeting, where chief executive Greg Foran apologised for the airline's customer services failings and lamented “some of the worst trading conditions in history”.

“I don’t know what was positive in that AGM,” Gordon said. “It is probably more the talk about reviving the trans-Tasman bubble.”

Talk of a safe travel corridor between NZ and Australia resurfaced this week as both countries seemed to be succeeding in suppressing covid-19 resurgences.

Auckland International Airport rose 0.7 percent to $7.23, but corporate travel firm Serko fell 2.2 percent to $4.50 and Tourism Holdings held at $2.27.

The New Zealand dollar offered little to excite investors moving only slightly higher throughout the day after a sharp correction last week.

The kiwi dollar was trading 65.66 US cents at 5pm in Wellington, up from 65.59 cents yesterday.

The trade-weighted index was at 71.13 at 5pm, from 71.18 yesterday. The kiwi traded at 92.69 Australian cents from 92.93 cents, 69.25 yen from 69.09 yen, 56.24 euro cents from 56.36 cents, 51.06 British pence from 51.35 pence, and 4.4803 Chinese yuan from 4.4733 yuan.

Tags: Market Close