MARKET CLOSE: NZ shares up 1%, led by Fisher & Paykel, Kathmandu, Spark

Friday 27th April 2018

New Zealand shares gained, led by Fisher & Paykel Healthcare Corp and Kathmandu in broad-based buying.

The S&P/NZX50 Index rose 88.32 points, or 1 percent, to 8,370.37. Within the index, 39 stocks rose, seven fell and four were unchanged. Turnover was $131.3 million.

Fisher & Paykel Healthcare led the index higher, up 3.5 percent to $12.86. That's the second day of gains for the stock following the publication of research in the International Journal of COPD (chronic obstructive pulmonary disease, which includes emphysema, chronic bronchitis and chronic asthma), showing significant benefits for patients using its humidifier.

Kathmandu Holdings rose 2.8 percent to $2.60, Spark New Zealand gained 2.5 percent to $3.43, and Meridian Energy advanced 2.1 percent to $2.89.

Auckland International Airport gained 2.1 percent to $6.31. Yesterday, the stock dropped 0.3 percent after an initial finding published by the Commerce Commission said it is concerned the airport is planning to make excessive profits on its regulated assets.

"It did allow them to include future runway land in regulated asset value and there was nothing that suggested wider concern such as any moves against the current setup where they can charge what the market will bear on retail and car parking and the like," said Matt Goodson, managing director at Salt Funds Management. "While in itself the finding wasn't good news and has led to some very minor downgrades, the market has taken it as a risk that's maybe receding."

"The bigger risk for Auckland Airport, and a number of other stocks: they are interest rate sensitive and bond yields have obviously been rising, although a lot more in the US than here. There's plenty of signs inflation is picking up in the US and to a lesser degree in New Zealand and Australia, so I suspect it will be a recurring theme in the coming months," Goodson said.

The worst performer was A2 Milk Co, which dropped 0.7 percent to $12.

Summerset Group fell 0.6 percent to $6.82. At the retirement village developer and operator's annual meeting this afternoon, chair Rob Campbell said it has opened a Melbourne office as it considers expanding into Australia.

"Clearly the business is travelling very well at present. What matters is the outlook, and in particular the outlook for the housing market, which retirement village operators are all closely linked to," Goodson said.

Outside the benchmark index, Tegel Group gained 0.9 percent to $1.13. Yesterday, Philippines-based poultry group Bounty Fresh Foods said it will mount a $437.8 million takeover bid for Tegel at $1.23, with the share price beaten up after multiple earnings downgrades. Bounty already has Tegel's cornerstone shareholder Affinity Equity Partners on board, signing a lock-up agreement with the holding company Claris Investments for a 45 percent stake.

"There is a bit of conditionality around the bid - the earnings condition is something Tegel should make. It's not a million miles away and there is uncertainty as to timing and actuality of OIO (Overseas Investment Office) approval. People are getting to grips with where the OIO is coming from under the new government. That's certainly a factor," Goodson said.

"There's an unusually large valuation dispersion in our market between large-cap companies, which are included in passive indices and are bought because of their size rather than their investment attributes, and smaller to mid-cap companies, which aren't. Last year we saw quite a number of takeovers of those smaller companies.

"While Tegel perhaps wasn't expected to be the first to go, given they've had a lot of issues, it's a theme we suspect might continue to play out simply because a lot of these smaller companies have been somewhat left behind," Goodson said.

(BusinessDesk)

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