Interest rates, earnings guidance squeezes shares down

The New Zealand sharemarket continued to lose ground as stocks were still boxed in by high interest rates and modest earnings expectations.

Wednesday, October 25th 2023, 6:16PM

by BusinessDesk

By the close, the S&P/NZX50 index was at 10,884.040, down 76.583 points, or 0.7%.

Turnover, worth $111.76 million, was moderate, and there were 78 falls and 48 rises among the 185 stocks traded on the main board.

“There certainly has not been any panic but there are quite steady falls now,” Matt Goodson, managing director at Salt Funds Management, said.

The market dropped 4.2% in August, 2.2% in September and has fallen by 3.6% so far this month.

“It’s a pincer movement between high bond yields and modest earnings projections,” Goodson said.

“It’s been a market that has been reasonably anchored in reality, but it’s continuing to come under pressure.

“What we really need is some lower inflation outcomes, which will then allow central banks to take the foot off the pedal,” he said.

On that score, a higher-than-expected 1.2% increase in Australian consumer price inflation for the September quarter is starting to solidify expectations of a Melbourne Cup day (Nov 7) rate hike from the Reserve Bank of Australia (RBA).

The RBA’s rate currently sits at 4.1%.

Skellerup Industries fell 2c to $4.73 despite providing an upbeat earnings guidance for 2024.

Shareholders at the company’s annual meeting were told that the first quarter’s results were mixed.

Skellerup nevertheless expects its 2024 net profit to be in a range of $50m to $55m compared to last year’s record profit of $50.9m.

Guidance below expectations

Goodson said the mid-point of the manufacturer’s guidance range was “fractionally” below market forecasts, hence the market’s subdued reaction.

Rural services group PGG Wrightson fell 8c to $3.47 after forecasting an operating Ebitda result for the June year of around $52m, down from $61.2m in the previous year.

The company said the medium to long-term sector fundamentals were still strong, but that its earnings would drop based on its assessment of a more challenging operating environment.

Demand in key export markets had declined and China’s economic recovery remained subdued, the company said.

Debt-laden Synlait Milk, which on Monday announced the sudden resignation of Simon Robertson as chair and as an independent director of the company fell by 7c to $1.26.

Goodson said the decline looked to be a delayed reaction to the resignation news.

“One can only speculate as to what sort of debate is going on right now about their capital structure and how that might be resolved,” he said.

“People are clearly linking up the unexplained resignation to that, so we will just have to wait to see which assets are sold or whether they plan to raise capital,” he said.

Synlait has put its Dairyworks business up for sale.

Restaurant Brands rallied by 18c or 4.8% after reporting to the market that its sales for the third quarter came to $340.9m, up $18.8m or 5.8% over the equivalent period last year.

The fast food brands company said the gain reflected ongoing recovery from the impacts of the 2022 Covid-19 Omicron outbreak and the price increases that were implemented across all markets.

In the lower cap stocks, Move Logistics gained 1c to 61c.

The company’s shareholders were told at the annual meeting that first half operating conditions had been tougher and for longer than anticipated - high inflation and interest rates dampening customer demand, and increased competitive pricing pressure.

Tags: Market Close