Companies punished when earnings expectations missed

New Zealand shares fell, led by Gentrack, after the utilities software developer was among companies reporting weaker than expected earnings today.

Friday, May 24th 2019, 5:59PM

by BusinessDesk

The S&P/NZX 50 Index fell 41.05 points, or 0.4 percent, to 10,222.36. Within the index, 27 stocks fell, 13 rose, and 10 were unchanged. Turnover was $165.6 million, of which SkyCity Entertainment Group accounted for $38.3 million.

Gentrack led the market lower, dropping 6.3 percent to $5.23 on a volume of 101,000 shares, more than its 90-day average of 76,000. The software company wrote down the value of a two-year-old acquisition which wasn't generating the expected increase in revenue, posting a first-half loss as a result.

Greg Smith, head of research at Fat Prophets, said with the NZX50 above 10,000, companies needed to hit earnings expectations to maintain their valuations.

"When the market's had such a good run, if you disappoint, it's not going to take it in its stride," he said.

Ryman Healthcare declined 1.3 percent to $11.72 on a volume of 468,000 shares, slightly more than usual. The country's biggest listed retirement village operator and developer posted a decline in annual profit as the value of its 36 villages rose at a smaller pace than a year earlier. It hiked its dividend payout after delivering another record operating earnings result and signalled more than $500 million of new development.

Smith said the result was okay, given underlying earnings growth, but that the softer property market is removing a tailwind for the sector.

"Ryman set the tone for the retirement sector," he said.

Rival Summerset Group fell 1.4 percent to $5.50 and Metlifecare was down 1.7 percent at $4.64.

Outside the benchmark index, Cavalier Corp warned it would only break even in the second half of the financial year, and was trading behind where management expected. The shares decreased 2.5 percent to 39.5 cents.

Augusta Capital climbed 5.2 percent to a record $1.21. The property management firm's annual profit jumped almost sixfold on increased underlying income and higher management and transaction fees. Asset Plus, which is managed by Augusta, was unchanged at 63.5 cents.

SkyCity was the most traded stock on the NZX50 with 10.2 million shares changing hands, more than 10 times its 755,000 average. It rose 0.3 percent to $3.85.

Fletcher Building increased 0.7 percent to $5.50 on a volume of 3.2 million shares, more than twice its average volume, and Meridian Energy advanced 0.2 percent to $4.36 on a volume of 2.6 million shares. Auckland International Airport decreased 1 percent to $8.56 on a volume of 2.1 million

Spark New Zealand fell 1.2 percent to $5.50 on a smaller volume than usual of 2.6 million shares.

Of other companies trading on volumes of more than a million shares, Infratil slipped 0.6 percent to $4.355, Argosy Property fell 2.2 percent to $1.32, Investore Property was unchanged at $1.73, and Contact Energy increased 1.4 percent to $7.45.

Property For Industry posted the biggest gain on the day, up 1.7 percent at $2.09 on a volume of 163,000 shares, less than its 208,000 average.

Fisher & Paykel Healthcare, which reports on Monday, rose 0.9 percent to $16.67, while Mainfreight, which reports on Tuesday, was down 0.3 percent at $35.24. Air New Zealand, which is holding an investor day on Monday, decreased 0.2 percent to $2.72.

Smith said the F&P Healthcare and Mainfreight results will be the major events next week, as will the government's budget.

Mercury NZ's 2044 capital bonds paying annual interest of 6.9 percent were the most traded debt security. They closed at a yield of 4.3 percent, up 5 basis points, on a volume of 303,000 notes. Mercury's shares rose 0.5 percent to $3.89, or a dividend yield of 5.49 percent.

Tags: Market Close