MARKET CLOSE: NZ shares fall; earnings concern weighs on Rakon, Mainfreight

Thursday 28th May 2009

New Zealand shares fell for the fifth day in six, led by companies that flagged weaker than expected earnings, such as Rakon and Mainfreight. Telecom declined after forecasting a drop in profit for 2010.

The NZX 50 Index fell 47.80, or 1.7%, to 2721.97. Within the index, 31 stocks fell, nine rose and 10 were unchanged. Turnover was NZ$97.5 million. Shares also slipped as the government suspended contributions to the NZ Super Fund as part of a budget aimed at cutting debt. Standard & Poor’s affirmed the nation’s AA+ credit rating and raised the outlook to stable after the budget.

Rakon (NZX: RAK ), which makes components for navigation systems, fell 7.5% to $1.35, its second daily decline, after posting a 59% slump in full-year earnings, as the global economic downturn eroded sales by 20%.

Mainfreight (NZX: MFT ), the biggest trucking company on the NZX 50, after managing director Don Braid said the company “expects to see volumes continue to decline for the immediate future and this will affect our profitability in the coming year result.” Net income in the year to March 31 fell to $35.5 million, including one-time items, from a year-earlier $101.6 million that was boosted by asset sales.

“I rate them as a good company but transport is a leading indicator of the economy,” said Stephen Wright, a private client adviser at ASB Securities.

The Treasury now projects a weaker track for gross domestic product than it did in its December Economic and Fiscal Update, according to Finance Minister Bill English’s first budget. The economy contracted 0.9% in the year ended March 31, according to its latest estimate, from a previous forecast of 0.3% growth. A contraction of 1.7% is now predicted for the current year, versus an earlier estimate of 0.8% growth.

Telecom (NZX: TEL ) fell 3.5% to $2.52. At analyst briefings in Sydney, New Zealand’s largest phone company forecast an adjusted net profit of $370 million to $410 million for the year ending June 30, 2010. That’s down from the $460 million and $500 million it expects to report this year. Earnings may rebound in 2011, it said.

Finance Minister Bill English today announced the government would suspend contributions to the NZ Super Fund until there was enough fiscal cash flow to meet contributions rather than borrowing the money. That may not be until 2021, he said.

The government will make a final NZ$250 million payment this year, with a low level request that it be invested locally to support New Zealand’s capital markets.

“While not surprising, the decision does appear to cease injections at a time whenrisky assets are arguably attractively priced,” said Bernard Doyle, New Zealand strategist at Goldman Sachs JBWere.

Companies are under pressure from lenders to have debt protected by a strong ratio of equity. Those that breached debt covenants, such as Fisher & Paykel Appliances and Nuplex Industries were forced to sell shares at a discount to strengthen their balance sheets.

Once the capital was confirmed, the shares rallied as the balance sheet risks evaporated.

F&P Appliances (NZX: FPA ) climbed 2.9% to $1.06, having soared yesterday from 66 cents on May 22, when it was halted for the capital raising.

ASB Securities’ Wright said the manufacturer, which is to be 20%-owned by China’s Haier as part of the capital raising, was “still in tough markets.”

Nuplex (NZX: NPX ) fell 2.2% to 44 cents today, still up from the 23 cents-to-27 cents price it sold shares at last month.

Affco Holdings (NZX: AFF ), the North Island-based meat exporter, climbed 4.4% to 48 cents after saying rising prices for lamb contributed to a 53% surge in first-half profit.

Vector (NZX: VCT ), the nation’s biggest gas and electricity distributor, fell 3.3% to $2.05. The utility today announced it raised $150 million through the sale of five-year BBB+ bonds paying 7.8% annual interest.

NZ Farming Systems Uruguay (NZX: NZS ) fell 3.7% to 52 cents, its second daily decline, after Fonterra Cooperative Group, the world’s largest dairy exporter, forecast a 13% drop in milk payments for the 2010 season to $4.55 per kilogram of milk solids.

Methven (NZX: MVN ) shed 6.6% to $1.27, reversing yesterday’s gains after the tap maker reported encouraging results in the U.K., an economy mired in recession.

Businesswire.co.nz

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