NZX CLOSE: NZX 50 snaps three-day rally on stretched valuations; Tower falls

Monday 21st September 2009

New Zealand shares snapped a three-day rally amid concern the 14% gain in the benchmark NZX 50 in the past month has pushed valuations beyond levels justified by the outlook for earnings. NZ Oil & Gas and Tower Ltd. led the decline.

The NZX 50 fell 0.8, or 0.02%, to 3155.65, edging down from an 11-month high. Within the index, 19 stocks fell, 23 rose and eight were unchanged. Turnover was $79 million in a week where public holidays in some Asian markets this week are expected to weigh on trading.

NZ Oil & Gas (NZX: NZO ) fell 4.6% to $1.65. The oil company’s relative strength index peaked out at 83 on Friday, on a scale where chart watchers say a reading over 70 means a stock is poised to fall. Friday was the record date for NZOG’s full-year dividend.Tower declined 3.4% to $1.72. Its RSI reached 81 on Friday.

“Things are looking a bit overbought. RSIs are all up, no question about it,” said Ian Waddell, head of stockbroking at McDouall Stuart. Still, any pullback may be modest as the 30 and 60-day averages on stocks are well below current prices.

Telecom Corp (NZX: TEL ), which was toppled by Fletcher Building Ltd. as the biggest company on the NZX 50 last week, fell 1.5% to $2.63. Waddell said the stock has been hurt by concern about fall-out from the Australian government’s decision to split up Telstra Corp. and the impact that may have on asset valuations.

Taylors Group Ltd (NZX: TAY )., the commercial laundry business, fell 2.7% to $2.18 after Grant Samuel & Associates valued the company at between $2.22 and $2.58 a share including a premium for control. That puts Spotless Group’s $2.25 offer to mop up the remaining shares of Taylors at the low end of a valuation range. Independent directors still endorsed the offer, saying a counter-bid is unlikely.

Restaurant Brands (NZX: RBD ), the fast-food chain, climbed 5% to $1.25, adding to its 16% surge on Friday, when the company forecast an 87% jump in first-half earnings, excluding non-trading items, of about $8.7 million, reflecting a turnaround at its Pizza Hut franchise and sustained sales growth for the KFC chicken outlets.

Pyne Gould Corp (NZX: PGC ) fell 7.4% to $1 as investors await details of the finance and agricultural investment group’s capital raising plans, which may top $160 million. A fully underwritten issue is expected to be taken up by existing shareholders.

Skellerup Group (NZX: SKL ), the rubber goods and milking equipment manufacturer, surged 6% to 53 cents, leading the NZX 50 higher.

Businesswire.co.nz

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