NZ shares surge as rate cut prospect buoys yield plays; Mercury, Meridian hit records

New Zealand shares got an unexpected boost after the Reserve Bank's warning that it may cut interest rates stoked demand for companies with stable dividends. Utilities Meridian Energy and Mercury NZ hit records.

Wednesday, March 27th 2019, 6:43PM

by BusinessDesk

The S&P/NZX 50 Index climbed 124.07 points, or 1.3 percent, to a record 9,698.89. Within the index, 31 stocks rose, 12 fell and seven were unchanged. Turnover was $163.5 million.

New Zealand's benchmark outperformed the rest of Asia, with China's Shanghai Shenzhen CSI 300 Index the next best performer, up 1 percent in afternoon trading. The local market had been tracking in line with Asia before the Reserve Bank held the official cash rate at 1.75 percent and said its next move would likely be a cut.

Lower interest rates are a boon for equities, boosting the attraction of companies offering stable dividends and providing easier credit to pursue merger and acquisition activity as a means to grow earnings. Swap rates and the New Zealand dollar tumbled as traders reassessed the chance of a lower benchmark interest rate.

"The market was meandering along and got caught out with regards to how the next move could potentially be down," said Peter McIntyre, an investment adviser at Craigs Investment Partners. "It certainly gave our market a good boost today - we're at record highs again - and we've seen good support for our yield plays."

Meridian rose as high as $4.18, and led the market higher, up 4.3 percent at $4.165 on a volume of 1.9 million shares. Spark New Zealand gained 3.1 percent at $3.15 on a volume of 6 million, both slightly larger than usual. Spark was the most traded stock.

Mercury gained 2.6 percent to a record $3.93 after announcing plans to start construction on a $256 million wind-farm from August. The project is expected to eventually deliver an extra $30 million a year to Mercury's earnings, and its construction will be funded by debt. Rating agency Standard & Poor's said Mercury's BBB+ credit rating can cope with the extra leverage.

Auckland International Airport was another to hit a record, trading as high as $8.235 before ending the day at $8.20, up 2.5 percent. About 1.9 million shares changed hands, compared to its 1.1 million 90-day average. Mainfreight rose 2 percent to a record $35.70 on 81,000 shares, almost twice its three-monthly average.

Air New Zealand was another trading on bigger than usual volumes. About 2.4 million shares changed hands, compared to its 964,000 three-monthly average. It rose 2.3 percent to $2.415.

Of other stocks trading on more than a million shares, Goodman Property Trust slipped 0.3 percent to $1.69, Arvida Group fell 1.6 percent to $1.26, Trade Me Group increased 0.2 percent to $6.41 and Contact Energy gained 1.2 percent at $6.65.

Kathmandu Holdings posted the biggest decline on the day, down 3.4 percent at $2.27. The retailer yesterday reported wider margins. A tax refund also underpinned its first-half earnings, and offset flat sales at its Kathmandu chain. McIntyre said investors were disappointed at the lack of outlook offered by the company.

Restaurant Brands New Zealand slipped 0.3 percent to $8.87. Finaccess Capital's partial takeover offer closed yesterday and the Mexican firm attracted 91 percent of acceptances, meaning it will scale down what it buys from selling shareholders to ensure it ends up with a 75 percent stake.

NZX was unchanged at $1. Hawke's Bay Regional Council today approved the creation of a holding company to float Napier Port more easily. The local body will decide on whether to proceed with an initial public offering in the coming weeks.

McIntyre said the prospect of low interest rates should support interest in NZX's debt market, which has been a source of cheap funding for corporates. Infratil-controlled Wellington International Airport last week raised $125 million in an 11-year bond, paying 4 percent annual interest which will reset in six years.

Infratil gained 1.5 percent to $4.10 on an unusually large volume of 3.1 million compared to its 427,000 average.

Outside the benchmark index, Methven rose 0.6 percent to $1.64 after getting High Court approval for its takeover by GWA Group. The board declared an interim dividend of 4.69 cents per share to be paid on April 10, the same day it will delist from the NZX.

Abano Healthcare sank 11 percent to $4.40, its second day of double-digit declines. The medical services investor warned of weaker profit due to tough trading conditions in Australia and said it's halted its acquisition programme there.

Wellington Drive Technology fell 6.4 percent to 22 cents after saying an existing customer has passed over the manufacturer in a procurement process. It said that had already been built into earnings guidance. Chair Tony Nowell, who had previously indicated plans to retire, today resigned from the board with immediate effect.

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