MARKET CLOSE: A2 drags stock index lower, Synlait, Fletcher Building fall

Wednesday 16th May 2018

New Zealand shares fell as A2 Milk Co disappointed investors with a market update, dragging down partner Synlait Milk.

The S&P/NZX 50 Index dropped 153.27 points, or 1.8 percent, to 8,555.51. Within the index, 24 stocks dropped, 20 rose and six were unchanged. Turnover was $240 million.

A2 Milk tumbled 13.7 percent to $11.30, after a trading update today disappointed investors who had been optimistic about the milk marketing firm's outlook. The Auckland-based company said second-half gross margin will stay broadly in line with the first half and expansion plans in the US and China underpin higher marketing costs.

"There is obviously a high expectation with this company that it will continue to deliver and beat expectations, it's only at the margin a modest miss," said Craig Stent, executive director and head of equities at Harbour Asset Management. "We've spoken to the company and other people today and there's nothing to be too worried about, it's more about them managing the rebranding of their product and not having old stock around. They're selling out the existing stock and then they're going to roll out the new branded goods, it's not like there's a demand drop in any of the markets, conditions are fine."

The stock fell by as much as 20 percent in the day but recovered into the close. Before today, A2 shares had soared 62 percent this year, and it was yesterday added to the MSCI main global index.

Synlait, which processes infant formula for A2, was the next-worst performer, dropping 4.2 percent to $10.30. There has been selling of stocks associated with A2, said Harbour Asset Management's Stent, who also pointed to ASX-listed Bellamy's Australia, which produces organic baby formula, and was down 9.4 percent to A$17.41 at around 5pm New Zealand time.

Ryman Healthcare dropped 3.4 percent to $11.22, Vital Healthcare Property Trust fell 2.2 percent to $1.99, and Summerset Group Holdings declined 1.7 percent to $7.11.

Fletcher Building fell 1.1 percent to $6.49. It reached its $750 million equity raising target after selling 20.2 million shares at $6.45 through its retail shortfall bookbuild, at a premium price to the entitlement offer of $4.80 but a discount to the trading price of the shares. Eligible retail shareholders took up about 58 percent of their entitlements.

"It's holding up relatively well compared to where that was done at," Stent said. "Compared to other entitlements it's probably a bit on the lower side, but retail people maybe think about it differently to institutional shareholders. The retail people do get the difference between the entitlement price and what the bookbuild was done at - $6.45 minus $4.80. The company overall still gets what they want in terms of dollar amounts, because it was underwritten."

NZX was unchanged at $1.10. It has sold its rural newspaper Farmers Weekly to its former owners Dean and Cushla Williamson for an undisclosed sum, with the new entity taking on all 15 staff.

Sky Network Television was the best performer, up 4.5 percent to $2.31. Spark New Zealand gained 1.1 percent to $3.57 and Mercury New Zealand rose 1 percent to $3.14.

Outside the benchmark index, TeamTalk rose 2.2 percent to 92 cents. The Wellington-based telecommunications minnow has sold its remaining 30 percent stake in rural broadband division Farmside to Vodafone New Zealand for $3 million after the country's biggest mobile operator exercised an option to mop up the rest of the business.

On the Unlisted platform, PharmaZen was unchanged at 7 cents. The Christchurch-based manufacturer of plant and animal-based health supplements is forecasting a 44 percent increase in sales this year to $10.5 million and a jump in earnings as it brings a new plant online.

(BusinessDesk)

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