NZ shares fall as Synlait declines another day

New Zealand shares fell as Synlait Milk led the market lower for a second day after it slashed its earnings outlook yesterday.

Friday, February 14th 2020, 7:12PM

by BusinessDesk

The S&P/NZX 50 Index declined 46.01 points, or 0.4 percent, to 11,834.83. Within the index, 24 stocks fell, 23 gained, and three were unchanged. Turnover was $168.2 million.

Synlait Milk fell 5.6 percent to $6.42, having been aggressively sold off yesterday, after it revised first-half net profit down by roughly $10 million and lowered its annual outlook to a flat profit at best. In two days the stock has dropped 22.6 percent.

Research house Jarden today decreased its target price on the stock to $7.75 from a previous target of $8.84, but said an absence of information about the margin in their key source of profitability made the outlook foggy.

“The investment case in Synlait remains challenging for investors who are increasingly less focused on the immediate growth in profitability Synlait is generating and more focused on the trajectory in margins with A2, which currently appear to be subject to regular renegotiation,” a note to clients said.

Stuart Williams, head of equities at Nikko Asset Management, said investors were still grappling with the magnitude of the surprise from the announcement and that medium-term demand was still strong.

“The core of their business in helping A2 satisfy their demand is very positive, I’d expect they’ll find a base,” he said

A2 Milk was unaffected by its key supplier’s poor performance, rising 0.7 percent to $15.91.

Williams said Fletcher Building was also weighing on the index, down 2.8 percent at $5.23. It has been a topic of conversation since the release of SkyCity Entertainment Group’s first half result yesterday because of its contract to build the international convention centre in downtown Auckland.

SkyCity shares held at $3.67 today. Yesterday it reported a 7.9 percent decline in underlying earnings, with the result overshadowed by the insurance claim for last year's international convention centre fire.

Williams said investors were trying to navigate upsides from increased government infrastructure investment against potential remediation work at SkyCity, ahead of Fletcher's own earnings report next Wednesday.

Travel stocks on the NZX fell today. Air New Zealand was down 2.5 percent at $2.75 on more than double its 90-day average volume, Auckland International Airport fell 1.3 percent to $8.35 on three times its average volume, and Tourism Holdings slipped 0.3 percent to $2.94 on a lighter volume of 80,000 shares.

Yesterday, China reported a sudden jump in the number of people with the covid-19 virus causing equity markets to falter temporarily, before the World Health Organisation clarified the increase was due to a re-classification of suspected cases and not a sudden increase in infections.

Z Energy posted the biggest gain on the index, rising 3.8 percent to $4.60, closely followed by Sky Network Television, rising 3.2 percent to 65 cents as it continues its recovery from a record low.

Williamson said Sky TV’s shift towards aggregative streaming content was the right approach.

“Like most businesses they have a few challenges, but their strategy is very sensible,” he said.

Sharemarket operator NZX rose 1.4 percent to $1.45 after it reported a full-year net profit of $14.6 million, up 7.1 percent from a year earlier. The stock is up more than 40 percent in the last 12 months.

Gentrack gained 2.2 percent to $2.33, the stock has gained 16 percent since Jan. 31. The software developer’s share price has been under pressure after it downgraded earnings forecast after disruption in the UK market cost it a key client.

Tags: Market Close