NZ market down following Synlait profit downgrade

The New Zealand sharemarket was down sharply on the back of a slide on Wall Street and conflicting messages from beaten-up Synlait and a2 Milk on the latest profit downgrade.

Wednesday, April 26th 2023, 6:39PM

by BusinessDesk

The S&P/NZX 50 Index fell at the opening and stayed low for the remainder of the day, closing at 11,934.98 – a decline of 91.41 points or 0.76.

There were 40 gainers and 87 decliners over the whole market on a volume of 34.26 million shares worth $137.92m. Auckland International Airport, up 3c to $8.78, made up a quarter of the trading with $33.43m worth of shares changing hands.

In the United States, the Dow Jones Industrial Average was down 1.02% to 33,530.83 points; the S&P 500 declined 1.58% to 4071.63; and the Nasdaq Composite fell 1.98% to 11,799.16 on new concerns about the banking sector.

First Republic Bank’s share price tumbled 49% after telling the market that deposits dropped 40% to US$104.5 billion (NZ$170.4b) in the first quarter but has since stabilised.

The local market was stirred when Synlait Milk announced it was reducing its net profit guidance for the year ending July to a range of $5m loss and $5m gain, from the previous $15m-25m profit.

The $20m downgrade represented the impact of further advanced nutrition demand reductions, higher financing and supply chain costs.

A2 Milk, which has a 20% shareholding in Synlait, followed suit by telling the market it was surprised at the extent of the reduction in Synlait’s guidance range. A2 Milk said there is no material change to its outlook, and it was expecting full-year revenue growth of about 10%.

Synlait slumped 58c or 27.1% to $1.56 and a2 Milk was down 34c or 5.45% to $5.90.

Greg Smith, head of retail with Devon Funds Management, said the tit-for-tat between Synlait and a2 provided the market with some excitement.

“The companies have a close mutual relationship and they provided quite divergent views. You’d think they would be more aligned than that. They need each other – Synlait holds the registration licence for a2 Milk to sell in China, and a2 has the marketing brand.

“Synlait implied that it was a2’s reduction in demand that largely explained $16.5m of the $20m profit downgrade,” Smith said.

The two companies were discussing the allocation of one-off production, supply chain and other costs.

Synlait told the market that the China re-registration remained on track for production in the fourth quarter, and a new multinational customer will increase advanced nutrition sales at its Pōkeno processing plant. There have been no demand changes in the ingredient, foodservice and consumer businesses.

Synlait is currently reviewing its capital strategy, especially its debt level, to ensure it has the appropriate funding for the 2024 financial year and beyond, but it is not considering a capital raising.

Synlait also announced it was reducing its forecast milk price to $8.30 per kgMS, from $8.50, because of lower commodity prices and a slower-than-expected Chinese recovery. Fonterra Shareholders’ Fund was down 8c or 2.32% to $3.37.

The local market was also driven down by Meridian Energy falling 23c or 4.26% to $5.17; Ebos Group decreasing 90c or 1.97% to $44.80; and Mainfreight shedding 99c to $72.

Westpac fell 70c or 2.84% to $23.95; Heartland Group shed 3c or 1.86% to $1.58; Napier Port decreased 5c or 1.93% to $2.554; Marsden Maritime Holdings declined 10c or 1.9% to $5.15; and Precinct Properties was down 5.5c or 4.28% to $1.23.

In the retail sector, Hallenstein Glasson was up 19c or 3.42% to $5.74; and Michael Hill was down 2c or 1.85% to $1.06.

Other decliners were Vulcan Steel, falling 32c or 3.56% to $8.68; Bremworth, down 2c or 5.56% to 34c; Enprise Group, decreasing 4c or 4.76% to 80c; Accordant Group, shedding 5c or 2.98% to $1.63; and Task Group, giving up 3c or 6.98% to 40c.

Summerset Group, down 5c to $8.17, told shareholders at its annual meeting that it is well prepared to deal with an uncertain economic period this year while continuing to grow. Summerset said it has a prudent capital structure and can flex its build rate as demand dictates.

Other retirement village operators Ryman Healthcare was down 7c to $5.28, and Arvida Group declined 2c or 1.89% to $1.04.

Contact Energy was up 10c to $7.75; Restaurant Brands increased 27c or 3.91% to $7.18; Rakon rose 5c or 5.26% to $1; Move Logistics collected 3c or 3.66% to 85c; and Embark Education improved 2c or 3.64% to 57c.

Smartpay Holdings, up 2.5c or 1.82% to $1.395, reported that Australian transaction revenue rose 76% in March and total value increased 64% for the year. Consolidated revenue for the year was up 54%, and the number of merchandise terminals, now more than 46,000 in Australia and NZ, increased 62%.

Tags: Market Close