NZX50 gains 4.9% in November as M&A boosts retirement sector

The S&P/NZX 50 Index rose 4.9 percent in November as retirement village operators were boosted by potential merger and acquisition activity and A2 Milk mounted a comeback on strong earnings guidance.

Friday, November 29th 2019, 7:17PM

by BusinessDesk

The benchmark index rose 109.29 points, or 1 percent, to 11,316.58 today, led higher by power companies on news of a meeting between Energy Minister Megan Woods and Rio Tinto executives where ways to cut the Tiwai Point smelter’s energy bill was discussed.

Within the index, 24 stocks gained, 17 fell, and nine were unchanged. Turnover was $199.6 million.

Meridian Energy led the market higher, up 4.1 percent at $4.71. The country’s biggest electricity generator was the most traded stock on a volume of 3.3 million shares, more than its 90-day average of 1.9 million.

The New Zealand Herald reported that Woods has directed officials to give her advice on material from Rio Tinto on how to reduce its energy costs.

Matt Goodson, managing director at Salt Funds Management, said many investors viewed the smelter owner’s threat of closure as unlikely because it was cashflow positive and faces significant site rehabilitation costs.

“There are signs that the minister met with Rio Tinto to discuss transmission costs, which is one of Rio Tinto’s bugbears,” Goodson said.

“That was taken as a positive that there may be some movement on the transmission costs, so you’ve seen those stocks bounce quite hard today.”

Contact Energy, which also has significant South Island generation assets, rose 1.6 percent to $7.17 on a volume of 1.5 million shares, while Mercury NZ was up 1.7 percent at $4.80 on a volume of 3 million, Genesis Energy rose 1.6 percent to $3.20 and Trustpower advanced 2.8 percent to $7.29.

Goodson said the local market continued to outperform most benchmark indices across Asia, trailing Pakistan’s Karachi 100 which was up 13.2 percent in November. However, the NZX50 has been the pick of the regional markets so far this year, up about 28 percent.

Metlifecare posted the biggest gain in November, up 21 percent. It was unchanged at $5.84 today. The retirement village operator this week hired Jarden to advise it in takeover negotiations with a “credible” buyer.

The prospect of a takeover helped buoy other retirement village operators, with Ryman Healthcare up 20 percent in November and Summerset Group advancing 17 percent. Ryman was up 0.6 percent at $15.10 today, while Summerset slipped 0.1 percent to $7.70.

A2 Milk rose 2.1 percent to $15.52, taking its monthly increase to 20 percent. The milk marketing firm upgraded its earnings guidance at this month’s annual meeting, which Goodson said forced investors holding short positions – where they anticipate the stock will fall – to cover their positions by buying shares.

Fisher & Paykel Healthcare rose 3 percent to $22.15, taking its monthly gain to 16 percent. The breathing mask manufacturer reported a 24 percent increase in first-half profit this week, which Goodson said was solid, but in line with expectations.

Healthcare stocks have been in vogue internationally, and that had added another tailwind to F&P Healthcare, which has led the NZX50 higher with a 65 percent increase in the year-to-date.

Among other stocks trading on volumes of more than a million shares, Spark New Zealand fell 0.4 percent to $4.54, Auckland International Airport dropped 1 percent to $9.03, Sky Network Television rose 1.2 percent to 85 cents, Goodman Property Trust was unchanged at $2.135, Oceania Healthcare was up 0.9 percent at $1.08, Infratil was unchanged at $4.90, Vista Group International increased 1.3 percent to $3.80 and Kiwi Property Group slipped 0.3 percent to $1.58.

Gentrack Group posted the day’s biggest decline, down 3.6 percent at $4 on a volume of 205,000 shares, almost twice its 112,000 average. The utilities software developer reported a 20 percent decline in underlying earnings this week and gave a subdued outlook for next year.

Fletcher Building rose 1.2 percent to $5.23. Government data today showed strong underlying demand for new buildings, and economists expect elevated activity for another couple of years.

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