Investors worry about interest rates – NZX50 droops

Companies producing solid financial results – this time Gentrack – are being rewarded but the New Zealand sharemarket tumbled nearly 1% on interest rate worries.

Monday, May 22nd 2023, 6:25PM

by BusinessDesk

The S&P/NZX 50 Index fell sharply in the morning and then steadied in the afternoon to close at 11,993, down 106.73 points or 0.88%.

There were 46 gainers and 83 decliners over the whole market with 35.77 million shares worth $130.2m changing hands.

The Reserve Bank delivers its latest monetary policy statement on Wednesday with an expected 25 basis points increase in the official cash rate (OCR) to 5.5% – though the market hasn’t forgotten the surprise 50 basis points rise in April.

There are still inflationary pressures around, particularly from increasing immigration, food prices, wage growth and extra spending in the budget. And one or two commentators are now predicting the OCR will reach 6% before pausing.

Matt Goodson, managing director of Salt Funds Management, said there is a slight fear that the Reserve Bank may increase 50 basis points. “If they do 25 basis points, then this shouldn’t have much effect on the market.

“But if it’s zero or 50 basis points, that’s when you’ll see the market move. Strangely, if it does go 50, then two- to three-year rates may fall because the economy will be seen to be slowing,” Goodson said.

The local market was led down by heavyweights Fisher and Paykel Healthcare, falling 50c or 1.87% to $26.30; and Fletcher Building, decreasing 18c or 3.58% to $4.85.

The retirement sector's run stalled on Monday. Summerset Group was down 27c or 2.98% to $8.80; Ryman Healthcare decreased 13c or 2.15% to $5.93; and Arvida was down 2c to $1.17.

Port of Tauranga shed 10c to $6.38; Napier Port was down 6c or 2.24% to $2.40; Investore declined 4c or 2.76% to $1.41; and My Food Bag fell 1.7c or 8.1% to 19.3c.

Restaurant Brands was up 27c or 4.01% to $7, and Synlait Milk gained 5c or 3.29% to $1.57.

Gentrack positive

Gentrack, which provides software solutions for utilities and airports, soared 88c or 25.81% to $4.29 after increasing revenue 47.71% to $84.3m and turning around a previous loss of $5.8m to a net profit of $7.88m for the six months ending March.

Gentrack upgraded its full-year revenue guidance to $157m-$160m, up from $147m-$150m, including $25m from insolvent UK customers. The revenue forecast for the 2024 financial year is expected to be similar this year.

The software company is expanding from its core markets of UK, Australia and New Zealand to Europe, Middle East and Asia, having opened an office in Singapore and signing up a large local energy retailer.

Goodson said Gentrack has been an extremely volatile stock but became a favourite today of small cap growth investors. The company had a moderate revenue upgrade and strong profit leverage.

AFT Pharmaceuticals rose 22c or 6.29% to $3.72 after reporting record annual revenue of $156.64m, up 20%, and steady operating profit of $19.7m for the year ending March.

Net profit was down 46% to $10.65m and AFT is paying a maiden dividend of 1.1c a share on July 4. Operating profit guidance for the 2024 financial year is $22m-$24m. AFT’s flagship Maxigesic pain relief medicines are now sold in 61 countries.

Sanford increased 12c or 2.93% to $4.22 after producing a solid six-month result, a 2.46% increase in revenue to $277.57m and an 81.51% rise in net profit to $11.1m. Sanford is paying an interim dividend of 6c a share on June 90.

The seafood company told the market that labour shortages and cost pressures have meant the seafood company has not yet returned to pre-covid levels of profitability.

Infratil reports

Utilities investor Infratil was down 29c or 2.98% to $9.455 after reporting an 11.9% increase in proportionate earnings (Ebitdaf) to $531.5m for the year ending March. It is paying a final dividend of 12.5c a share on June 13.

Infratil is forecasting proportionate earnings of $570m-$610m for the 2024 financial year and presently has access to $1.4b to fund growth, including $600m cash. Shareholder returns were 14.2% and an average of 18.6% over the 29 years it has been listed.

Goodson said Infratil produced some decent numbers but there was a slightly weaker-than-expected guidance. “One of its key businesses, One NZ (formerly Vodafone), was slightly above the top end of expectation, reflecting the present purple patch for mobile phone players with the return of roaming.”

Kiwi Property, unchanged at 90c, reported a 13.9% increase in net rental income to $203.7m and gross operating profit of $129.6m, up 11.3%, for the 12 months ending March. Occupancy is 99.3%.

Net loss was $227.7m, mainly because of a $139.3m reduction in the value of its portfolio in the second half. Kiwi Property’s Sylvia Park, LynnMall and The Base (Hamilton) shopping centres recorded more than $1.7 billion in sales, up 34.8% on the 2019 full-year (pre-covid).

Tags: Market Close