NZX 50 falls as Westpac's margin tanks

New Zealand's headline share index started November with a decline, having already dropped 1.3% in October, with Westpac Bank leading the market lower on a depressing earnings result.

Monday, November 1st 2021, 8:16PM

by BusinessDesk

The S&P/NZX 50 Index fell 69.51 points, or 0.5%, to 13,030.31. Turnover was on the light side at $106 million.

Westpac’s result looked good from a distance, with earnings up more than 100% at A$5.35 billion (NZ$5.6b) and management announcing a A$3.5b share buyback.

However, investors were underwhelmed by earnings in the second half which fell almost 50% as profit margins shrunk under cost pressure.

Shares in the dual-listed bank fell 6.3% to $25.53 on the NZX – wiping $6 billion from its market value – while rival Australia and New Zealand Banking Group dropped 1.3% to $29.40.

While Westpac’s decline was the most dramatic move, the bank only comprises a small part of the index which was more affected by heavyweight stocks.

October’s worst performer, Mainfreight – which makes up 5% of the index – continued to decline 2.1% to $88.

Contact Energy fell 1% to $8.10 and Auckland International Airport was down 1.3% to $7.89, together comprising about 11% of the index.

Forsyth Barr analysts Matthew Leach and Liam Donnelly said it was large caps dragging the market down last month, as investors swapped them for smaller stocks.

This theme carried through into the first day of November with Briscoes and Skellerup as the only billion-dollar companies to climb more than 1%.

Meanwhile, AFT Pharmaceuticals added more than $30m to its market capitalisation as it jumped 7.3% to $4.40 per share. The Auckland-based drug maker will be paid a $3.6m milestone payment by its US partner after a medical regulator accepted its application for patented pain relief medicine.

AFT said the licensing agreement with Hikma could result in future milestone payments of up to US$18m, as well as a profit share from product sales if the FDA approves the drug.

Forsyth Barr analysts today gave stock market operator NZX an ‘outperform rating’ after a strong third-quarter trading update with revenue up 20%.

The analysts said the stock was undervalued and reiterated their target price of $2.01, likely prompting today’s 1.7% jump to $1.76.

“NZX is trading at a near-all time low vs the NZX 50 on a forward price-to-earnings basis, while it also screens well against international peers,” they said.

Seedling supplier ArborGen jumped 5.4% to 29.5 cents after announcing it would sell its New Zealand and Australian businesses for $22.3m in cash and reinvest the proceeds in its US and South American operations.

The NZ dollar was trading at 71.66 US cents today, down from 71.80 cents on Friday with several central bank meetings and two labour reports due this week.

Tags: Market Close