Investors hit pause on market rally. Find out why.

New Zealand shares fell as companies reported mixed earnings results. A2 Milk led the market lower after its full-year report didn’t meet investors' high expectations.

Wednesday, August 19th 2020, 6:10PM

by BusinessDesk

The S&P/NZX 50 Index fell 97.84 points, or 0.8 percent, to 11,751.29. Within the index, 18 stocks fell, 26 rose and six were unchanged. Turnover was $192.5 million.

Investors hit pause on a rally which saw the index gain 3.6 percent across the previous two days, after market darling A2 Milk reported a weaker than expected earning result.

The infant formula distributor, which posted more than a 30 percent jump in both full-year revenue and profit, said it continues to expect more growth this year and is looking for investment opportunities.

However, its share price fell 5.6 percent to $20.33 as many investors were disappointed the result wasn’t even stronger.

“It’s a slight miss but doesn't change the longer-term picture,” said Sam Dickie, a senior portfolio manager at Fisher Funds.

Revenue and earnings before interest, tax, depreciation and amortisation were in line with the middle of the company’s guidance range, but the consensus expectation had been for the result to be at the top of the range, he said.

“When you are priced for perfection anything less is going to see your share price come back,” said Grant Davies, an investment adviser at Hamilton Hindin Greene.

Synlait Milk fell 4.6 percent to $6.79, moving in unison with A2 as its key supplier. Its share price rose sharply ahead of the result but has now fallen back near where it started the week.

Fisher & Paykel Healthcare dropped 2.2 percent to $35.45 as investors cashed in gains from its 5 percent bounce on upgraded earnings guidance yesterday. F&P Healthcare and A2 Milk make up approximately 30 percent of the index.

Fletcher Building declined 0.6 percent to $3.38 as it confirmed an annual net loss of $196 million due to further provisions for legacy construction losses and the impact of the coronavirus crisis.

The damage had been foreshadowed last week, Davies said, so the result wasn’t moving the share price much today.

Australia & New Zealand Banking Group rose 2.5 percent to $20.46 after it said its balance sheet was strong enough to pay a dividend of 25 Australian cents per share next month.

Yesterday, Westpac Banking Corp shares fell almost 2 percent after it scrapped paying its dividend. Its share price dropped a further 0.2 percent today to $18.94.

Outside of the top 50 index, Hallenstein Glasson shares jumped 21 percent to $4.15 after the clothing chain said online channels helped to keep annual sales stable through the pandemic lockdowns.

Sales increased 0.1 percent despite the interruption from pandemic lockdowns, profit declined just 5.6 percent and the retailer declared an interim dividend of 15 cents per share.

“It is an example of retail business rolling with the punches and finding new ways to reach their customers,” Davies said. “In a yield-starved market that dividend starts to look pretty attractive.”

Jewellery chain Michael Hill International did not fare so well through the lockdown with earnings before interest and tax falling 33.3 percent to A$14 million, well below analyst expectations. Its share price dropped 4.2 percent to 34.5 cents.

In currency markets, the kiwi dollar held onto overnight gains as the economic outlook in the United States softened the greenback.

“The markets have flipped the switch to complete dollar-off mode,” said Stephen Innes, chief global markets strategist at AxiCorp. “The decline in sentiment is the apparent by-product of the rise in the US covid-19 cases [that] could temper the US recovery.”

The kiwi dollar was trading at 66.02 US cents at 5pm in Wellington, up from 65.47 cents yesterday.

The trade-weighted index was at 71.23, up from 70.75 yesterday. The kiwi traded at 91.23 Australian cents from 90.62 cents, 69.68 yen from 69.16 yen, 55.33 euro cents from 55.05 cents, 49.86 British pence from 49.84 pence, and 4.5696 Chinese yuan from 4.5364 yuan.

Tags: Market Close