Market Close: Electricity stocks fall as interest rates rise

Energy utilities helped edge the New Zealand sharemarket lower as market interest rates climb and devalue dividend-focused stocks.

Tuesday, November 16th 2021, 6:59PM

by BusinessDesk

The S&P/NZX 50 Index fell 62 points, or 0.5%, to 12902.71. Turnover was $134 million.

Three of the top five decliners on the index today were electricity generators, which are often bought by investors as they provide a steady dividend yield.

However, higher yields on government bonds have been reducing what the market is willing to pay for stocks that carry more risk than a bond.

Mercury NZ, which fell 2.8% to $5.92 today, has declined more than 10% since the end of August as the yield on a 10-year government bond climbed from 1.6% to 2.6%.

Meridian Energy dropped 2.1% to $4.70, Genesis Energy was down 1.9% at $3.10, and Contact Energy slipped just 0.4% to $8.05.

Forsyth Barr analyst Andrew Harvey-Green said Contact had a strong month in October with its hydro generation levels high and was “on track for a record first-half result”.

Despite this, the analyst lowered his target price by 3% to $8.05 due to higher interest rates as investors are wanting to buy at lower prices to create a higher dividend yield.

“This target price adjustment is consistent with recent adjustments we have made to the other generator/retailers over the past four weeks”, said Harvey-Green.

Macquarie analysts said in a note to clients that the average ASX equity risk premium was just 2.8%, suggesting the compensation for owning stocks over bonds is already low.

Global interest rates pushed higher again overnight as a Bank of England governor said he was “very uneasy about the inflation situation”.

On the other hand, a Reserve Bank of Australia governor said today there would be no rate hike in 2022.

Elsewhere on the NZX, A2 Milk Company led the index lower as it fell 2.9% to $6.31. Fisher & Paykel Healthcare also fell 1.3% to $31.57.

Shares in media company NZME jumped 5.7% to $1.29 after management announced a $30 million share buyback that could see the company purchase more than 10% of shares on issue.

Napier Port climbed 2.7% to $3.06 after reporting revenue rose 9% to $109.5 million in the year ended 30 Sept.

Chair Alasdair MacLeod said he expects the underlying result from operating activities to increase by approximately 10% in the new financial year - assuming a continuation of current market conditions.

The NZ dollar was virtually unchanged during the session and was sitting at the lower end of its 70.4 to 70.8 US cent range, and its 95.85 to 96.10 Australian cent range.

Tags: Market Close