Earnings season ends on a sour note; index changes boost volume

New Zealand shares rose as the local earnings season ended on a sour note, with Air New Zealand confirming a lacklustre result. Tourism Holdings gained after being upgraded after investors digested its earnings this week.

Thursday, February 28th 2019, 9:35PM

by BusinessDesk

The S&P/NZX 50 index increased 43.56 points, or 0.5 percent, to 9,325.03. Within the index, 26 stocks rose, 18 fell, and six were unchanged. Turnover was $247.3 million, with re-weightings to the MSCI index driving up the volume of trading.

The bulk of companies with December and June balance dates finished out the latest earnings season. A few stragglers who have delayed their reports, such as Vital Healthcare Property Trust, are still to come. Its units increased 0.5 percent to $2.115.

Air New Zealand was the last of the major companies to report, having already laid the groundwork for a weak result when it downgraded guidance in January. Today, it reported a 35 percent slide in first-half earnings as rising fuel costs, slower growth in passenger numbers, and disruptions caused by engine issues weighed on its operations. The shares dropped 3.5 percent to $2.47, the lowest in almost two years. Almost 3.8 million shares were traded, more than three times its 90-day average.

Shane Solly, a portfolio manager at Harbour Asset Management, said there were some positives to take from the airline's result, such as its restructuring plans. While the growth trajectory is now flatter, it is still positive.

"The market is digesting today's result, and you're probably still seeing analysts quietly cutting their forecasts," he said.

Tourism Holdings led the market, up 5.8 percent at $4.77 on higher than average volumes of 455,000. The rental RV operator is bouncing back from a 17-month low and was upgraded to 'neutral' from 'underperform' today by First NZ Capital, which said the stock is trading at a discount to its fundamental value.

Gentrack Group rose 3.3 percent to $4.70 on typically light volumes of 59,000, recovering recent losses when it downgraded earnings guidance. Fellow software firm Pushpay was also up, rising 4.7 percent to $3.36.

Solly said earnings season was consistent with slowing growth not just domestically but around the world.

"We've still got a degree of growth, but just like everybody else in the world that degree of growth is slowing," he said. "Our market is reasonably fully-priced - it needs earnings to keep going and to remain positive to support it."

Fonterra Shareholders' Fund units sank 7.3 percent to a record low close of $4.17 on a volume of 711,000, almost twice the average. Fonterra won't pay an interim dividend after downgrading its forecast earnings, while raising the farmgate milk price it expects to pay suppliers.

"It's disappointing, but it's obvious Fonterra is for the cooperative farmers - that's what the group is there to protect," Solly said.

Power companies rose after the Electricity Authority found there wasn't an undesirable trading situation in the wholesale market late last year when electricity prices spiked. Meridian Energy rose 1.1 percent to $3.69 on a volume of 3.8 million shares, Contact Energy gained 0.8 percent to $6.33 on a volume of 3.3 million, Genesis Energy increased 0.7 percent to $2.80 on a volume of 916,000, and Mercury NZ was up 3.7 percent at $3.69 on a volume of 818,000.

Spark New Zealand was the most traded stock, with a volume of 12.2 million, compared to its 4.3 million average. It rose 0.7 percent to $3.73. Sky Network Television dropped 2 percent to $1.46 on a volume of 3 million, almost six times its average.

Of other stocks trading on volumes of more than a million shares, Fletcher Building was unchanged at $4.89, Auckland International Airport rose 0.9 percent to $7.77, Precinct Properties New Zealand advanced 0.3 percent to $1.50, A2 Milk fell 2 percent to $14.31, and Fisher & Paykel Healthcare gained 2.6 percent at $14.70.

Solly said the MSCI index changes affected Auckland Airport, A2, Fletcher, F&P Healthcare, Meridian, Ryman Healthcare and Spark, but there were no new entries or exits. Ryman rose 0.8 percent to $11.

Vista Group International decreased 0.2 percent to $4.50 after announcing chief financial officer Rodney Hyde is leaving the cinema software firm to join another Kiwi tech firm.

Outside the benchmark index, Methven was unchanged at $1.62 after reporting a 7.9 percent increase in underlying earnings on strong performances in the UK and China. The tapware maker is poised to leave the NZX in April with shareholders to vote on a $118 million takeover offer.

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