MARKET CLOSE: NZ shares fall, led lower by Comvita, A2 Milk, SkyCity

Wednesday 26th October 2016

New Zealand shares fell, following the Australian market lower as Comvita suffered from weaker sales, while A2 Milk Co and SkyCity Entertainment Group dropped.

The S&P/NZX 50 Index fell 106.67 points, or 1.5 percent, to 6,896.2. Within the index, 41 stocks fell, five rose and four were unchanged. Turnover was $124 million.

"The index is being dominated by the inflation data out of Australia today which was a bit stronger than expectations," said Craig Stent, a director at Harbour Asset Management. "The likelihood of them cutting rates is a lot lower now, and the Australian market's down 2 percent as we speak, so that's flowed on - the idea that stimulus from central banks could be removed has led to repricing of some of these yield-sensitive stocks and the demand for them may not be as great going forward."

At 5pm local time, the S&P/ASX 200 Index was down 1.5 percent.

Comvita led the index lower, down 11.4 percent to $9.44. The manuka honey and health products company warned its first-half result is likely to be a loss after tough trading in the first quarter of the 2017 financial year resulted in an unexpected drop in sales.

The company said the lower than expected sales were the result of a slowdown in the New Zealand and Australian informal trade channels in China following regulatory changes, including a restriction on sales by individual traders and a new border taxation of 11.9 percent.

"It's disappointing for a growth company, clearly the channels into China have slowed a bit, though they did say there had been a bounceback of late," Stent said. "It's disappointing given the expectation of 10 to 15 percent growth. You're seeing the same thing flow to A2 Milk as well, the potential impact of regulatory changes. The whole sector's pulling out in sympathy from the comments those companies are making."

A2 Milk Co dropped 4.4 percent to $6.53, while Auckland International Airport fell 5.2 percent to $6.53 and Scales Corp dropped 4 percent to $2.92.

SkyCity Entertainment Group shed 2.8 percent to $3.79. The shares began falling last week in response to the arrest of 18 staff employed by its Australian rival, Crown Resorts, by the Chinese government.

"The Chinese have detained some more people overnight, they invited some of the junket operators and high rollers in for a cup of tea," Stent said. "There are further issues there and that's spooked gamblers from potentially coming across from China to Australia, Macau or wherever - they're trying to crack down on money exiting the Chinese markets. SkyCity's woes which they announced last week predate these issues anyway."

Restaurant Brands is in a trading halt at $5.46 pending the result of an institutional bookbuild. Today it announced plans to buy Pacific Island Restaurants, the largest fast food operator in Hawaii with 82 Taco Bell and Pizza Hut stores, to diversify its earnings away from New Zealand where it runs the KFC, Pizza Hut, Starbucks Coffee and Carl's Jr food chains.

"They've done a good job here of getting same-store sales growth so this is the next opportunity for them, it's a pretty well-run business so if they can do anything like they've done in New Zealand there might be some positive from that," Stent said.

Spark New Zealand dropped 1.3 percent to $3.545. Senior executive Jolie Hodson has sold almost all of her ordinary shares in the country's biggest telecommunications business, details filed with the NZX show.

Air New Zealand was the best performer on the index, up 0.8 percent to $1.925, while Stride Property gained 0.5 percent to $1.89.

Outside the benchmark index, Pumpkin Patch remains in its trading halt at 6 cents. The children's clothing retailer has been tipped into receivership by its lenders and appointed voluntary administrators after failing to reinvent itself in the face of shrinking sales and too much debt.

"They've had problems for a while, they needed to get sales going to pay the bank and they haven't been able to do that in a satisfactory manner," Stent said. "It would've been impossible for them to raise equity, it's a sad day for a business that has been around for a while but structural changes within the market has limited its ability to adapt and grow."

Skellerup Holdings gained 1.4 percent to $1.43. The industrial rubber goods maker expects annual profit to rise as much as 7 percent, recovering from last year's decline, as it puts greater emphasis on potable water applications and food safety.

BusinessDesk.co.nz

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