Dairy stocks whacked on a2 Milk downgrade

Dairy companies led the local stock market lower, with a2 Milk sinking to a three-and-a-half-year low after the milk marketing firm cut its earnings guidance yet again.

Monday, May 10th 2021, 6:26PM

by BusinessDesk

The S&P/NZX 50 Index dropped 72.74 points, or 0.6%, to 12,659.01. Turnover across the broader market was $166.8 million, with 69 stocks of the 186 listed securities declining and 68 rising.

A2 led the benchmark index lower, falling 12.8% to $6.62, its lowest since October 2017. The milk marketing firm now expects annual sales of $1.2 billion-to-$1.25b in June year and has halved projected profit margins to between 11% and 12% as it writes off excess inventory.

“It was worse than what the market expected, even though the market was aware, to a degree, of the potential for another downgrade to come through, said Grant Davies, an investment adviser at Hamilton Hindin Greene.

“A2’s still big enough to drag the NZ market down.”

The downgrade weighed on A2 supplier Synlait Milk, which sank 5.9% to $3.21. Synlait is going through its own shake-up after the unexpected departure of chief executive Leon Clement last month.

Fonterra Shareholder Fund units fell for a second day, down 4.7% at $4.10, as investors continue to digest the cooperative’s proposals to ditch or slim down the fund. Fonterra’s shares – which can only be traded by its supplying farmers – diverged markedly from the fund, sinking 12.4% to $3.46.

The downbeat tone weighed on a number of blue chip stocks, with Meridian Energy down 0.2% at $5.32, Auckland International Airport falling 1.1% to $7.52, Mercury NZ declining 0.9% to $6.82, and Mainfreight decreasing 0.3% to $76.07.

Spark NZ fell 0.9% to $4.54 after smaller rival 2degrees talked up its 2020 earnings ahead of this week’s March quarter earnings and update on whether its parent will spin out the country’s challenger mobile carrier as a standalone business listed on the NZX and ASX.

Heartland Group Holdings rose 1.6% to $1.88 after the bank operator and reverse mortgage firm upgraded its earnings guidance. Harmoney, which counts Heartland as a shareholder, dropped 12.2% to $1.80.

Skellerup posted the day’s biggest gain in the top 50, up 3.5% at $4.68.

Investore Property rose 0.5% to $2.12 after saying it agreed to buy a Countdown supermarket property in Wellington’s Petone for $37.3m.

SkyCity Entertainment Group was unchanged at $3.48 after setting the interest rate on $125m of six-year bonds at 3%. Precinct Properties NZ slipped 0.3% to $1.675 after saying it is considering issuing a green bond.

The kiwi dollar was stronger after weaker than expected US employment data on Friday weighed on the greenback. The NZ dollar traded at 72.82 US cents at 3pm from 72.40 cents last week, while the trade-weighted index edged up to 75.49 from 75.44.

The kiwi traded at 92.74 Australian cents from 92.96 cents last week, 79.26 yen from 79 yen on Friday, 51.89 British pence from 52.07 pence, 59.89 euro cents from 60.01 cents, and 4. 6811 Chinese yuan from 4.6785 yuan.

Tags: Market Close