Pacific Edge's plunge helps NZX50 to lowest level in 10 weeks

It was back to the future for cancer diagnostic firm Pacific Edge after its price plunged more than 75% during a down day for the New Zealand sharemarket.

Wednesday, June 7th 2023, 6:46PM

by BusinessDesk

On its darkest day of trading in two decades, Pacific Edge ended well below its February 2004 price of 14.9c. It closed the day with a fall of 38.6 or 77.98% to 10.9c after coming out of a trading halt and seeing 25.4 million of its shares worth $2.81m being traded.

Pacific Edge listed at 25c a share in late November 2002 – 15c was paid upfront and 10c deferred to September 2003 – and it had a market capitalisation of $14.8m; it is now $88.33m.

Ebos Group, which has lost its $1.9 billion a year supply contract with Chemist Warehouse, led the market down for the second day running. The S&P/NZX 50 index declined 122.94 points or 1.03% to 11,759.15 – its lowest level in nearly 10 weeks after sitting at 11,771.27 on March 28.

There were 64 gainers and 71 decliners over the whole market with 54.07m shares worth $141.84m changing hands.

Ebos, a consistent top-10 stock, fell a further $1.88 or 5.03% to $35.50 on trade worth $28.72m. Its share price has fallen nearly 15% in two days to its lowest level in nearly eight months.

A volatile Pacific Edge traded in a range of 5c and 16c after telling the market it will no longer receive Medicare funding coverage for its Cxbladder tests in the United States – its growth market.

The share price fall was almost equivalent to the amount of revenue it will lose – the Medicare and Medicare Advantage tests, 60% of the US business, generated $15.3m or 77.3% of Pacific Edge’s total operating revenue for the year ending March.

Pacific Edge told the market it will explore all available legal options, including an appeal, and it will bill and receive reimbursement from other contracted US payers.

Jeremy Sullivan, investment advisor with Hamilton Hindin Greene, said Pacific Edge’s growth strategy was focused on the US and the decision by Medicare’s contractor Novitas is a major blow – if not a threat to its whole business model.

“No doubt, Pacific Edge will pull out all stops to have the decision overturned. To see Pacific Edge’s market capitalisation reduced from $400m to less than $100m in one day is not a normal occurrence on our market. It goes back to the pre-continuous disclosure obligations to see such volatility with a company announcement,” said Sullivan.

“It’s been an interesting couple of days of corporate action. It goes to show the benefits of having a diversified portfolio and not having large exposures to single contracts. You’ve seen (with Ebos and Pacific Edge) what can happen very quickly.”

Turning up the heat

The corporate action was even hotter when utilities investor Infratil went into a trading halt till Friday morning after launching an $850m equity raise at $9.20 per share. The money will help fund the purchase of the remaining 49.95% shareholding in One NZ (formerly Vodafone) for $1.8 billion.

Infratil last traded at $10.10. Infratil, which already owns 49.95% of One NZ, is buying the holding from Brookfield Asset Management with a mixture of cash, debt and the equity raise involving an institutional placement worth $750m and a pro-rata retail offer of $100m to shareholders.

The acquisition values One NZ (with 2.7m mobile connections and 98% national coverage) at $5.9b, and Infratil will finish up with 18.7% debt gearing and available liquidity of $927.7m.

Sullivan said with full control, Infratil can run its own timetable on when to exit One NZ. “You might see a sale over the next five years – just like they did with Z Energy (service stations).”

Global marketer A2 Milk gave back nearly all the gains the day before, falling 24c or 3.97% to $5.80. Synlait Milk was down 11c or 5.88% to $1.76 after gaining re-registration for A2 Milk’s China-label infant formula.

Sullivan said the average trade in A2 Milk’s shares was $2,200, so it looked like retail investors were waiting for the announcement and then deciding to sell.

Fisher and Paykel Healthcare was up 14c to $23.95; Tourism Holdings rebounded 13c or 3.77% to $3.58; Arvida Group added 3.4c or 2.92% to $1.20; Eroad increased 3c or 3.66% to 85c; NZME rose 4c or 4.17% to $1; and AFT Pharmaceuticals gained 7c or 1.83% to $3.90.

In the property sector, Stride was up 5c or 3.82% to $1.36, and Property for Industry gained 4c to $1.73.

Mercury Energy was down 18.5c or 2.75% to $6.535; Auckland International Airport decreased 13.5c to $8.585; Sanford retreated 11c or 2.58% to $4.17; Freightways declined 10c to $87.75; and Mainfreight shed $1.05 to $69.

Warehouse Group was down 8c or 4.68% to $1.63; Rakon shed 4c or 4.08% to 94c; TradeWindow fell 3c or 8.57% to 32c; and NZ Automotive Investments declined 1.5c or 4.92% to 29c.

Tags: Market Close