Wary investors cast gloom over the NZ sharemarket

The New Zealand sharemarket is heading for its worst month in a year, and farming-related stocks were unsettled after Fonterra lowered its farmgate milk price forecast for the second time in a fortnight.

Friday, August 18th 2023, 6:22PM

by BusinessDesk

The S&P/NZX 50 Index made a small recovery late in the day and closed at 11,611.19, down 40.39 points or 0.35%.

The index fell nearly 2% for the week – this last happened in late May - and it has fallen on 12 of the last 14 trading days. The index is down nearly 4% so far this month – the weakest month since September last year – and August is only halfway through. The index is still 1.27% ahead for the year.

There were 91 decliners and 40 gainers over the whole market on light trading of 22.05 million shares worth $86.44m.

Mark Lister, investment director with Craigs Investment Partners, said, “the optimism we have enjoyed over the first seven months of the year has turned. The local market is looking subdued.

“The turn is hardly surprising. July is typically a good month for global sharemarkets, and August and September two of the worst,” he said.

“Inflation is still stubbornly high, we’ve got the potential for another interest rate hike; there’s worrying signs coming out of China with their economy in a difficult spot, and the dairy prices have continued to fall.”

Lister said the latest milk price forecast is back to the level of five years ago, and in that time, on-farm costs have risen dramatically. “We will see a lot of farmers unprofitable [because of the latest forecast], and we can’t underestimate how much whack is taken out of the economy.”

Fonterra Co-operative reduced its 2023-24 farmgate milk price forecast to a midpoint of $6.75 per kg milk solids after dropping it to $7kg/MS on August 4. Fonterra said the Global Dairy Trade index had fallen 16% since its opening farmgate forecast for the season in May.

Rural services company PGG Wrightson fell as low as $3.88 before recovering to $4, down 4c, and Synlait Milk finally picked up 1c to $1.49 after hitting $1.45. Fonterra Shareholders’ Fund decreased 55c or 14.29% to $3.30, but that was more to do with the co-operative’s $800m capital return at 50c a share.

Livestock Improvement Corporation (LIC), unchanged at $1, downgraded its full-year underlying earnings guidance to $17m-$22m from $22m-$28m.

LIC said although it is early into the season, the lower forecast milk payout has created a challenging economic landscape for many dairy farmers. LIC remained committed to ensuring farmers can continue their investment in breeding the most efficient cows for their herds.

Spark a bright note

Telco Spark gained 3c to $5.08 after reporting a 20.7% increase in revenue to $4.49 billion and a 176.8% rise in net profit to $1.135b for the year ending June. Spark is paying a final dividend of 13.5c a share on October 6.

Earnings were boosted by the sale of 70% of Spark’s TowerCo business, with 1,263 cell sites, to the Ontario Teachers’ Pension Plan Board for $900m. That sale and the exit of Spark Sport resulted in a net operating earnings (Ebitda) gain of $529m. Adjusting for the one-off benefit, revenue increased 5.1% to $3.908b and was underpinned by 9% growth in mobile services.

Spark’s guidance for the 2024 financial year was operating earnings of $1.215b-$1.26b, capital expenditure of $510m-$530m, and a total dividend of 27.5c a share.

Lister said Spark’s result was in line with guidance, though at the bottom of its range. “It’s steady as she goes for Spark – with the mobile division performing well. Its guidance for the 2024 financial year was a little higher than expected, and Spark is a safe, defensive income stock, and telecommunications companies should be.”

Ebos Group slipped a further 80c or 2.26% to $34.59 – back to the level of mid-November 2021. Mainfreight was down 51c to an 11-month low of $66.29 after sitting at $66 on October 20.

Fisher and Paykel Healthcare declined 27c to $22.38; SkyCity was down 6c or 2.58% to $2.27; Stride Property decreased 4c or 2.72% to $1.43; Vista Group shed 5c or 2.63% to $1.85; and Vital fell 2.5c or 10.87% to 20.5c.

In the energy sector, Contact was down 11c to $8.38; Genesis shed 5c or 1.98% to $2.47; and Meridian gave up 7.5c to $5.385.

Manuka honey producer Comvita, down 5c to $3.30, told the market it had achieved the internationally-recognised B Corp Certification for sustainable business practices.

KMD Brands declined 2c or 2.27% to 86c; Michael Hill was down 2c or 2.04% to 96c; Allied Farmers fell 4c or 5.56% to 68c; Bremworth decreased 2c or 4.44% to 43c; and Argosy Property was down 2.5c or 2.09% to $1.17.

Among the few gainers, Seeka rose 20c or 8.33% to $2.60; Winton Land increased 13c or 5.37% to $2.55; and Precinct Properties added 2.5c or 1.99% to $1.28.

Tags: Market Close