Shares plummet as A2 shocks market

New Zealand’s benchmark equity index tumbled as one of its biggest stocks, A2 Milk Company, lost a fifth of its value after a second earnings downgrade.

Friday, December 18th 2020, 6:14PM

by BusinessDesk

The S&P/NZX 50 Index fell 206.77 points, or 1.6 percent, to 12,682. Within the index, 32 stocks fell, 16 rose and two were unchanged. Turnover was $408.5 million, as S&P/NZX and FTSE Russell indices had their quarterly rebalance.

Investors wiped $2.3 billion from A2 Milk’s market capitalisation as they dumped their shares after it slashed full-year revenue guidance by about 20 percent.

Shares fell in proportion to the revenue cut, dropping 22.1 percent to $11 with 5.8 million shares changing hands. The stock has traded as high as $21.74 cents this year.

“There is no sugar coating it, it is a terrible update,” said Mark Hampton, an investment adviser at Hamilton Hindin Greene.

A2 Milk today cut almost half a billion dollars from its full-year guidance, which had already downgraded its earnings around 10 percent in September due to disruption in the daigou channel.

Hampton said the latest downgrade had eroded shareholders’ trust in A2’s leadership, after they reiterated the higher guidance at its annual general meeting just last month.

“It is a month to the day of when they held the AGM and reaffirmed guidance; how much changed in those 30 days? At best they were being very optimistic back then,” he said.

“Some of the 22 percent that this stock is down, is shareholder disappointment in management.”

A2 Milk has been a market darling and one of 2020’s strongest performers but now “some of that gloss has come off”.

Dairy processor Synlait Milk, a key supplier of A2, also saw a further share price decline today, down 3 percent to $4.85, after falling more than 7 percent yesterday. Trading was halted in the afternoon while Synlait worked out what A2's downgrade meant for it.

Hampton said the shock news from A2 Milk, combined with the community transmission of covid-19 in Sydney, prompted broad-based weakness in equity markets.

The S&P/ASX 200 was down more than 1 percent, while many other Asian markets were also weaker.

Stocks that had been climbing on vaccine news and the prospect of a trans-Tasman bubble early next year had the largest declines, Hampton said.

Auckland International Airport declined 3.8 percent to $7.755, Air New Zealand dropped 3.5 percent to $1.80, and jet-fuel supplier Z Energy fell 3.1 percent to $3.13.

Travel management software Serko bucked the trend, up 6 percent at $5.88, posting the day’s biggest gain.

Fisher & Paykel Healthcare climbed 3.2 percent to $34.21, although it wasn’t enough to cancel A2’s dramatic decline.

The kiwi dollar was virtually unchanged from yesterday although it did touch highs of 71.70 US cents overnight, reaching a fresh three-year high in the process.

The US dollar was weaker as reports suggested US lawmakers were getting closer to having a US$900 billion fiscal support package agreed before the weekend.

The kiwi dollar was trading at 71.30 US cents at 5pm in Wellington, from 71.26 cents yesterday.

The trade-weighted index was at 74.19 at 5pm, from 74.18 yesterday. The kiwi traded at 93.78 Australian cents from 93.95 cents, 73.72 yen from 73.65 yen, 58.22 euro cents from 58.35 cents, 52.68 British pence unchanged from yesterday, and 4.6627 Chinese yuan from 4.6586 yuan.

Tags: Market Close