Fonterra shares jump after share buyback programme announced

Yesterday’s shock Reserve Bank of Australia’s 50 basis point hike took everyone by surprise, with a flow-on effect in New Zealand’s benchmark index today, while Fonterra’s announcement of a new share buyback programme hiked the stock.

Wednesday, June 8th 2022, 6:23PM

by BusinessDesk

The S&P/NZX 50 Index remained flat at 0.54 points, or 11,266.24. Turnover was $106.6 million and 65 stocks rose, while 74 stocks fell.

The Australian central bank lifted its cash rate target by 50 basis points to 0.85% yesterday, with further rises likely to follow as concerns about inflation ramp up.

Mike Houlahan, a director of Electus Financial, said the 50bp hike had come as a surprise because many were expecting it to be between 25bp and 40bp – even though the Australian reserve bank had told the market in March that it wasn’t going to hike interest rates until 2024.

“Historically, the RBA has tended to have a relatively cautious approach to monetary policy, more so than New Zealand,” he said.

“If you were to compare it to New Zealand, we've looked a lot more like a learner driver in terms of how we've implemented monetary policy over the years.”

ASB senior economist Mike Jones said this morning that the RBA had taken a leaf out of the Reserve Bank of NZ's book yesterday and was acquiring fresh urgency to get on top of inflation.

“The cash rate hike to 0.85% was because of rising inflation pressures and the still very low level of interest rates,” he said.

Fonterra buyback

Meanwhile, Fonterra Shareholders’ Fund units spent most of the afternoon near the top of the index, ending the day up 1.7% to $3.05.

Fonterra Co-operative Group's shares were also up 14% to $2.85.

The jump followed Fonterra’s announcement of its share buyback programme, which will allow Fonterra to allocate up to $50m to an on-market share buyback programme starting on June 30.

Fonterra chair Peter McBride said in an announcement today: “The co-op considers the prevailing price, particularly since late April, has undervalued Fonterra shares, which is a key reason for announcing this buyback.”

In December last year, Fonterra Shareholders' Fund chair John Shewan told the fund's annual meeting that the fund had “run its course” and it was time for the co-operative to buy out the unitholders.

“My question and my challenge to Fonterra is, what's its purpose?” he asked at the meeting last year.

Greg Smith, head of retail at Devon Funds, said the buyback was “sending a pretty strong signal out there”.

ASB economist Nathaniel Keall said in an ASB dairy update that dairy prices have lifted at the latest global dairy trade auction overnight.

Another higher milk price – north of the $9 mark – also loomed ahead for the market, Keall said.

“While prices will move cyclically lower at some stage, we don’t expect to see things fall away at any significant clip until at least the back end of the season,” he said.

A2 Milk Company shares were flat at $5.14 per share in early evening trading, while Synlait Milk was up 0.88% to $3.43.

Honey products maker Comvita was up 5.7% to $3.34 today.

Fisher & Paykel Healthcare helped tug the index just into positive territory today as the stock jumped up 2.3% to $20.57.

Smith said the stock was still going through a “bit of a settling down process” as the healthcare company slowly makes its way out of a prosperous pandemic environment and into a more uncertain one.

“The company itself doesn't seem to have a great fix on what the future looks like,” Smith said.

NZ Automotive Investments also rose 12.6% to 89 cents per share in early afternoon trading, equalling a 10 cent jump. But the share price settled at a 6.3% increase at the end of the day's trading.

Yesterday, Sky Network Television shares fell 7.2% to $2.45 after a report emerged – and was then confirmed by Sky – that it had its eye on buying radio and advertising business Mediaworks, which was recently valued at roughly $150m.

Although Sky’s shares got out of the right side of the bed this morning and were higher up the index in the afternoon, the share price dropped 2.9% to $2.38 at the end of the day.

Smith said Sky going after the acquisition of MediaWorks instead of being acquired itself hadn’t been well received by investors and described it as Sky becoming the “predator, not the prey” to investors.

“There’s been quite a lot of disappointment there,” he said.

Chatham Rock plummeted 10.4% to 37 cents in early afternoon trading, before ending the day down further at 14.5% to 35 cents.

Westpac Bank shares fell 6.5% to $24.56, and Australia and New Zealand Banking Group also dropped 2% to $26.80.

The NZ dollar was trading at 64.73 US cents at 3pm in Wellington, down from 64.69 cents yesterday. The trade-weighted index was at 71.91, from 71.96 yesterday.

Tags: Market Close