Short sellers send A2 shares up

Investors buying into rumours Nestle was exploring a takeover of A2 Milk Company prompted the stock to jump more than 10% today.

Monday, August 16th 2021, 7:04PM

by BusinessDesk

Meanwhile, the S&P/NZX 50 Index fell 0.3%, to 12,720.15, as the majority of stocks declined. Turnover was $179 million.

The Australian today reported Swiss-owned dairy giant Nestle had been eying up a possible takeover bid of the infant formula brand after it reports its annual results.

This sent the stock flying as high as $7.16 – a 13% gain – before closing at $7.05, up 11.4% from yesterday’s closing price.

Head of private wealth research at Craigs Investment Partners, Mark Lister said it was just one newspaper reporting “what looks like an off-the-cuff comment” but it was a realistic possibility.

A2 Milk’s share price is very low, but it holds a considerable amount of cash on its balance sheet and retains a strong brand.

“The market, to a degree, believes where there is smoke there is fire. There were also probably a lot of people shorting the stock who don't want to get burned if there is truth to it,” he told BusinessDesk.

Investors who have shorted a stock eventually have to buy the stock to complete the trade, which sometimes leaves them scrambling to buy if a share price starts to climb.

Other investors may be buying back into the stock to “keep a toe in the water” having sold positions earlier in the stock’s decline. A total of 1.7m shares worth $12m were traded.

“It could all fizzle out and there could be nothing to it – but if I was a holder I’d be sitting tight and biding my time to see if there was some truth to it,” Lister said.

Lister noted the stock was still down more than 50% from where it was before the pandemic and even further below its record high near $21.

Most other stocks on the index declined today as investors prepared for a pivotal policy change from the Reserve Bank of New Zealand on Wednesday.

“Local interest rates rose ahead of this week’s monetary policy statement, where financial markets see a hike in the official cash rate as a certainty,” Craigs IP said in a note.

The two-year swap rate is up 9 basis points at 1.33% and the five-year rate at its highest level since May 2019 at 1.66%.

ANZ Bank fell 2.8% to $30.07, Infratil shares were down 2.3% to $7.34 and Meridian Energy declined 2.1% to $5.03. All three stocks are sensitive to interest rates.

Contact Energy reported a 50% increase to net profit, but its share price declined with other utility stocks. It finished the day down 0.3% at $8.13.

Fisher & Paykel shares were down 1.8% at $31.05. The stock has been a top performer, but investors will be looking for earnings guidance at the company’s annual general meeting this week.

Lister warned that the healthcare manufacturer might not be in a position to give an accurate prediction of its earnings with the pandemic still impacting its demand profile.

Plexure shares rose 9.3% to 59 cents after announcing it was merging with payment platform Task, acquiring the private company for $125m paid mostly in equity.

The kiwi dollar was trading at 70.37 US cents by 3pm in Wellington, up from 70.07 cents on Friday.

The trade-weighted index was at 74.78 at 3pm, from 74.57 Friday. The kiwi traded at 50.76 Australian cents from 50.74 cents, 77.01 yen from 77.37 yen, 59.65 euro cents from 59.69 cents, 50.76 British pence from 50.74 pence, and 4.5571 Chinese yuan from 4.5382 yuan.

Tags: Market Close