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MARKET CLOSE: NZ shares down, Metro Glass and TradeMe drop on earnings, A2 at new high

Thursday 24th August 2017

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New Zealand shares fell, with Metro Performance Glass and Trade Me Group dropping sharply after disappointing earnings while A2 Milk Co reached yet another record.

The S&P/NZX50 Index dropped 11.05 points, or 0.1 percent, to 7,868.41. Within the index, 21 stocks fell, 20 rose and nine were unchanged. Turnover was $178 million. 

Metro Performance Glass led the index lower, falling 10.8 percent to $1.24. The company said it expects its first half results to be largely flat despite the contribution from recently acquired Australian Glass Group. Intraday, the shares fell as low as $1.19, the lowest it's been since listing in mid-2014. 

Metro Glass delivered a $19.4 million net profit for the year to March 31, down from $21.3 million a year earlier, as it absorbed the costs of the major acquisition in the Australian market and the impact of declining building activity in Canterbury and a dip in Wellington activity after the Kaikoura earthquake last November.

"It's certainly well below expectations, it's quite an irony in this market where we're having a building boom but the likes of Metro Glass, Fletcher Building, Steel & Tube have all had tremendous issues," Matt Goodson, managing director at Salt Funds Management said. "The share price was down at these levels in April and ground up, people weren't expecting quite that outlook. It's also a very volatile time in the market - quite outsize responses then reversing themselves the next day, or intra-day in some cases. It's a very whippy time indeed."

Trade Me declined 6.6 percent to $4.52. New Zealand's largest online auction site posted a 26 percent jump in annual profit to $94.4 million, but it warned earnings growth will slow in the coming year as it ramps up investment.

Earnings before interest, tax, depreciation and amortisation rose 11 percent to $155.7 million and net operating profit was up 12 percent to $93 million, though chief executive Jon Macdonald warned that the pace of growth wouldn't be sustained this year as the company ramps up investment.

"The result itself was there or thereabouts, it's really more the outlook - the continuing need for TradeMe to invest - that has seen the reaction," Goodson said. "Particularly some of the Australian analysts who followed the stock had extremely aggressive expectations out there. Today has been a bit of a reality check on the investment TradeMe needs to make on the go-forward competition as things like Facebook starts to make a small impact into New Zealand, and if and when Amazon Prime gets offered into New Zealand it could have quite some impact as well. Trade Me will need to keep investing to protect its position."

Sky Network Television dropped a further 4.4 percent to $2.80. Selling began on Tuesday when it posted a 21 percent decline in annual profit to $116 million as content costs increased while revenue and subscriber numbers fell. The stock has dropped 12 percent since then.

"This is a market which is willing to pay very aggressive multiples for companies which can deliver on growth expectations, but conversely for companies perceived to be in decline, market reaction across Australasia has been savage," Goodson said. "Even though the result yesterday was fairly on the money, weaker subscriber numbers are weighing on that as people trace it forward."

Scales Corp dropped 4.4 percent after it said its first half profit fell 14 percent to $29 million after its apple orchards were hit by heavy rain and winds and needed more expensive care. Revenue was $216.7 million, up 3 percent on the year, while earnings before interest, tax, depreciation and amortisation dropped 11 percent to $48.4 million.

"Several of the analyst estimates have been too aggressive and will need to be pulled back slightly," Goodson said. "Scales have done remarkably well in what was a very difficult apple season, it's an interesting reaction because once you get through this year obviously next year's a new year."

A2 Milk Co gained 5.2 percent to $5.47, another record. Yesterday, the milk marketer announced it had tripled its annual profit to $90.6 million and would use some of its accumulated cash to buy back shares, and may pay a special dividend. Revenue rose 56 percent to $549.5 million, ahead of the $545 million it forecast in June, which was its second lift in sales guidance.

"It's remarkable, a number of analyst upgrades overnight although the share price is well and truly up there where people are valuing it," Goodson said. "It's a stock that had tremendous short interest in it, which was clearly the wrong call, so there's an awful lot of pain there from people covering and the price responding accordingly."

"They've done a fantastic job but there does remain utterly unforecastable regulatory risk, and when you're making something as fragile as infant formula there's always product risk. It's not riskless by any means but to date they've done an extraordinarily good job."

Among the other companies who reported today, Ebos Group gained 2.2 percent to $17.99, Vista Group International was unchanged at $5.50, Meridian Energy dipped 0.5 percent to $2.93, Vector dropped 1.2 percent to $3.42, New Zealand Refining gained 0.4 percent, CBL Corp rose 1.6 percent to $3.28.

Fletcher Building dropped 1.2 percent to $8.35. Retiring Meridian Energy chief executive Mark Binns has definitively ruled himself out of interest in either taking over the leadership of Fletcher Building or of becoming a director of the troubled construction company.

Other companies which held annual meetings today included Infratil, which gained 0.2 percent to $3.16, Fisher & Paykel Healthcare, which gained 0.3 percent to $11.68, and Pacific Edge, which rose 1 percent to 48.5 cents. 

Outside the benchmark index, NZME dropped 9.5 percent to 86 cents. It increased first half trading earnings 1 percent as audience numbers ticked up but warned that headwinds remain and said completing the merger with Fairfax Media remains a priority.


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