MARKET CLOSE: NZ stocks drop, Kathmandu and Fisher & Paykel fall while Fonterra continues gains

Tuesday 2nd August 2016

New Zealand shares fell, led lower by Kathmandu Holdings and Fisher & Paykel Healthcare, while Fonterra Shareholders Fund continued yesterday's gains.

The S&P/NZX50 Index dropped 27.44 points, or 0.4 percent, to 7,329.19. Within the index, 24 stocks rose, 21 fell and six were unchanged. Turnover was $155.6 million.

The Reserve Bank of Australia cut its cash rate to 1.5 percent, a fall of 25 basis points. Speaking ahead of the announcement at 4:30, Peter McIntyre, investment adviser at Craigs Investment Partners, said the market was expecting a rate cut. New Zealand's Reserve Bank will make its next interest rate announcement on Aug. 11.

"It really puts the pressure on the Reserve Bank of New Zealand to cut again, and I think you'll see a firmer tone across New Zealand stocks as the expectation builds for that interest rate cut in August to eventuate - it's just going to drive our market higher because the market likes low-interest rates," McIntyre said.

Kathmandu Holdings was the worst performer on the index, down 1.7 percent to $1.77. The shares hit an eighteen-month high of $1.81 last week and have dipped since then, which McIntyre said could be some profit-taking after the stock gained 17 percent in July.

Fisher & Paykel Healthcare fell 1.4 percent to $10.46. The company gets more than 50 percent of its sales in US dollars, and the shares have been impacted by the strength of the New Zealand dollar, McIntyre said.

Dual-listed banks fell, with Australia & New Zealand Banking Group down 1.3 percent to $26.90 while Westpac Baking Corp dropped 0.7 percent to $32.52.

"Banks like interest rates rising, because that's how they can uptick on margin," McIntyre said. "The earnings environment for banks is pretty subdued, you'd have to question how much of that interest rate cut will go back to the consumer because the banks need to maintain margins to remain profitable and carry on paying strong dividends back to shareholders."

McIntyre said the banks may need to raise capital in the future to stay in line with capital requirements which have been increasing in Australia.

Fonterra Shareholders Fund gained 2.3 percent to $5.92. The cooperative group kept its forecast farmgate milk price unchanged at $4.25 per kilogram of milk solids and said it expects earnings per share of 50c to 60c for the year ending July 2017. The forecast milk price for 2016/17 means the total payout available to farmers will be $4.75 to $4.85, still below the break-even for many farmers. Industry body DairyNZ today estimated the average farmers breakeven price for this season would be $5.05/kgMS.

"A number of brokers have research on Fonterra with good price targets," McIntyre said. "The market's always looking for value, looking for surety of dividend yield and that's possibly what Fonterra did on Monday."

Air New Zealand was the biggest gainer, up 3.1 percent to $2.33, a three-month high. The price of a barrel of Brent Crude Oil is currently at US$42.26, the lowest level since April.

Tegel Group Holdings advanced 2.4 percent to $1.68 and New Zealand Refining Co rose 2.4 percent to $2.58.

Outside the main index, PGG Wrightson gained 10.6 percent to 52 cents. First NZ Capital analysts followed the company's profit upgrade yesterday by raising their price target for the stock, and today's gain added to yesterday's 4.5 percent increase after the Christchurch-based rural services company beat earnings guidance for the year ended June 30. First NZ Capital analyst Kar Yue Yeo kept his 'outperform' rating on Wrightson stock and lifted his target price to 65 cents from 50 cents.

Plexure Group was unchanged at 30 cents. The mobile advertising firm, which changed its name from VMob in July, downgraded its guidance today. The company said its projected $10 million of annualised committed monthly revenue is more likely to be achieved by the end of the fourth calendar quarter, rather than the end of September 2016, as it guided in April.

BusinessDesk.co.nz

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