NZ market edges up while shares in Synlait Milk drop almost 10%

New Zealand's benchmark share index rose while shares in milk processor firm Synlait Milk fell almost 10% on the news that A2 Milk wants to cancel Synlait’s exclusive milk formula production and supply rights deal because of delivery and performance issues.

Monday, September 18th 2023, 6:42PM

by BusinessDesk

The S&P/NZX 50 Index rose 49.3 points, or 0.4%, to 11,397.00. Turnover was $70.7 million. There were 57 gainers and 79 decliners on the main board.

A2 Milk told the market on Monday morning it had notified Synlait on Friday after trading closed on Friday that Synlait's “full and on time performance” fell below the level required for Synlait to maintain its exclusive rights.

Synlait shares were put into a trading halt this morning, and the halt wasn’t lifted until after 3pm. Synlait said it disputes that A2 Milk has the right to cancel the exclusivity arrangements.

The dispute resolution process involves a 20-business day period of good faith negotiation between Synlait and the a2 Milk Company, followed by arbitration if not resolved. The milk processor also confirmed its full-year guidance ahead of the result due to be announced on Sept 25. Its net profit guidance range is a net loss of $5m to a net profit of $5m.

Peter McIntyre, an investment advisor at Craigs Investment Partners, described the guidance as “very wide” and was likely to have been revealed to “reassure the market of their financial position”.

Synlait Milk shares fell 12 cents or 9.4% to $1.16 by the end of the day. A2 Milk was down 5 cents or 1% to $4.83. Fonterra Shareholders’ Fund Units went in the other direction and were up 13 cents or 4.1% to $3.30 by the end of day trading.

McIntyre said the next global dairy trade (GDT) auction was on Wednesday, and because prices were pulling back for dairy producers, it was good for Fonterra’s ingredients side of the business.

McIntyre said Fonterra was also expecting to pay dividends towards the higher end of their payout ratio.

“Some investors are seeing this as an opportunity to maybe get more involved with Fonterra,” he said.

In other moves, SkyCity Entertainment Group fell 3 cents or 1.5% to $1.97. The casino operator’s two-day scrap over a $220m contract it had with a Macquarie Group subsidiary kicked off in the high court in Auckland on Monday.

The court case is over a concession agreement for a parking building damaged in the International Convention Centre blaze in 2019.

Contact Energy was up 3 cents or 0.4% to $8.23. The company said its Tauhara geothermal project has continued to make progress and was 98% on target as hydro lake levels fell below historical mean averages.

Contact's mass market electricity and gas sales were 489 gigawatt hours (GWh) during August compared to 458 in August 2022.

Also, on the gentailer front, Genesis Energy said it now hopes its Huntly Unit 5 plant will start generating again at the end of January.

It told the market on Monday that it now expected the financial impact to be $25m after successful negotiations with third parties to accelerate a return to service, subject to any material adverse events or unforeseen logistical or supply chain delays.

Genesis Energy rose 1.5 cents or 0.6% to $2.52, Mercury was up 1 cent or 0.2% to $6.16, and Meridian Energy also edged up 2 cents or 0.4% to $5.38, but Manawa Energy fell 17 cents or 3.7% to $4.40.

Heavyweight stock Mainfreight was up 1 cent or 0.02% to $64.40, Auckland International Airport rose 11 cents or 1.4% to $7.85, and Fisher & Paykel Healthcare edged up 35 cents or 1.6% to $21.75.

Aged care stocks were mixed across the board, with Ryman Healthcare down 10 cents or 1.5% to $6.50.

Summerset Holdings was up 18 cents or 1.9% to $ 9.88, Arvida Group was up 2 cents or 1.6% to $1.24, and Oceania Healthcare fell 1 cent or 1.3% to 76 cents.

Making cents

The NZ dollar was trading at 59.08 US cents at 3pm in Wellington, up from 59.26 on Friday. The trade-weighted index was at 69.71, from 69.86 on Friday.

CMC Markets analyst Tina Teng said in a note on Monday that it would be a “big week” for the financial markets.

Four central banks, including the US Federal Reserve (Fed), the Bank of Japan, the Swiss National Bank, and the Bank of England, are set to decide on their policy rates.

“The Fed is expected to pause rate hikes this time but is likely to stay hawkish, which will be the most influential event to the financial markets,” she said.

Tags: Market Close