a2 leads market lower for a second day

A2 Milk led the local stock market lower for a second day as the milk marketing firm’s woes continued to drag down agricultural companies.

Tuesday, May 11th 2021, 6:06PM

by BusinessDesk

The S&P/NZX 50 Index fell 19.82 points, or 0.2% to 12,639.19. Across the wider market, 111 of the 186 listed securities fell, and 30 rose. Market turnover was $188.6 million.

A2 Milk dropped 6.5% to $6.19 on a brisk volume of 3.3 million shares, extending its decline after the firm warned revenue will be even lower than previously expected and profit margins skinnier. The downgrade comes ahead of a review of the MSCI NZ Index, and exchange-traded funds will sell the stock if the milk marketing firm is dropped.

“We don’t think it will be out of the MSCI index, which is probably more a positive than a negative, but there’s a lack of confidence in management,” said Peter McIntyre, an investment adviser at Craigs Investment Partners.

A2 Milk’s continued weakness comes as supplier Synlait Milk grapples with its own problems with profitability and as Fonterra weighs up overhauling its capital structure.

Synlait shares edged up 0.3% to $3.22, and Fonterra Shareholders Fund units were down 2.9% at $3.98, while Fonterra’s farmer-owned shares rose 8.7% to $3.76, reversing some of the recent divergence from the fund.

McIntyre said the listed dairy sector is under pressure for a variety of reasons, but that the outlook is “rather promising” given elevated export prices, which should prop up the price received by farmers.

Other stocks exposed to agriculture were also weaker today, with PGG Wrightson falling 2.4% to $3.32, Skellerup Holdings down 0.6% at $4.65, NZ Rural Land Co declining 1.7% to $1.18, and Scales Corp slipping 0.9% to $4.55.

Pushpay Holdings declined 5.3% to $1.61 ahead of reporting its annual result tomorrow. McIntyre said there are some concerns the firm’s competitors are making inroads into the top 100 churches in North America.

Among other companies reporting later this week, Tilt Renewables decreased 0.1% to $8, Goodman Property Trust was unchanged at $2.30, and The Warehouse slipped 0.6% to $3.48.

McIntyre said investors will largely ignore Tilt because of the $8.10 per share offer, while The Warehouse should be in line with strong results from other retailers.

Meridian Energy was the strongest performer on the NZX50, up 2.3% at $5.44. The country’s biggest electricity generator held an investor day, with the three main themes covering decarbonisation, future dry year responses, and how it will respond to the exit of NZ Aluminium Smelters in 2024.

Auckland International Airport increased 2.1% to $7.68 and Napier Port advanced 1.7% to $3.52.

SkyCity Entertainment rose 1.2% to $3.52. The casino operator has been on the road spruiking a bond issue and telling investors its domestic business has bounced back strongly. That outlook comes investors weigh up a A$12 billion merger across the Tasman between Crown Resorts and Star Entertainment. Crown also has private equity suitors.

The yield on BNZ’s 2025 subordinated notes rose 9 basis points to 2.69% after the bank announced plans to redeem the $550m of debt on June 17.

The kiwi dollar slipped to 72.62 US cents at 3pm in Wellington from 72.82 cents yesterday, while the trade-weighted index edged down to 75.33 from 75.49.

The kiwi traded at 92.71 Australian cents from 92.74 cents, 51.44 British pence from 51.89 pence, 79.07 yen from 79.26 yen, 59.83 euro cents from 59.89 cents, and 4.6654 Chinese yuan from 4.6811 yuan.

Imre Speizer, Westpac head of NZ strategy, said the near-term outlook for the kiwi looks bullish against the greenback, which has been under pressure of late, and he expects the NZ dollar will eventually break through the 73 US cents cap it recently faced.

He’s more bearish about the NZ dollar against the Aussie, with Australian commodity prices, such as iron ore, outperforming their kiwi counterparts of late.

“Looking ahead, we target 90 Australian cents by year-end, with improving global sentiment and China’s economic outperformance expected to favour the Australian dollar over the NZ dollar,” he said in a note.

Tags: Market Close