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MARKET CLOSE: NZ shares weaken as A2, property stocks drop, while Synlait gains on fresh milk plans

Wednesday 20th December 2017

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New Zealand shares fell, led lower by A2 Milk even as Synlait Milk gained, while Kiwi Property Group and Goodman Property declined.

The S&P/NZX50 Index dropped 17.64 points, or 0.2 percent, to 8,383.56. Within the index23 stocks fell, 15 rose and 12 were unchanged. Turnover was $134 million.

A2 Milk Co led the index lower, down 2.6 percent to $7.94, while Synlait Milk was the best performer, up 4.8 percent to $7. Synlait today announced it will enter the fresh milk market in early 2019 by partnering with Foodstuffs South Island and will invest about $125 million in a liquid dairy packaging plant.

The Dunsandel-based company will become Foodstuffs South Island's exclusive supplier of its private label fresh milk and cream under the supply agreement, it said in a statement. Fresh milk and cream from Synlait will be packaged in Value and Pams branded products, which are available across New World, PAK'nSAVE, Four Square and On The Spot stores.

"It's not obviously value additive at first glance - Synlait will really need to use the added capacity they're creating to produce further value-added products down the track," said Matt Goodson, managing director at Salt Funds Management. "The whole dairy space is very whippy at present, very significant up and down moves in reaction to information."

The two milk stocks went through a spell of mirroring each others' trading patterns, but have decoupled lately.

"It was odd they were so coupled in the first place," Goodson said. "Synlait is the contract manufacturer whereas A2 had far more leverage to their marketing success in China. It was more about sentiment to the overall sector."

Property stocks were a little weaker today, after US ten-year bond yields rose above the 2.4 percent barrier and closed about 2.45 percent on the passage of tax legislation through the US Congress, Goodson said.

"Significant tax cuts at a time when your economy is near full employment would normally be inflationary, that has got people thinking about next year and what's likely to happen," he said. "A lot of the previews we're seeing from strategists suggest somewhat higher bond yields, and property and utility names tend to be the most affected by that. That's one thing that has carried over to a modest degree in our market."

Kiwi Property fell 1.1 percent to $1.40, Goodman Property dropped 0.7 percent to $1.375, Argosy Property was down 0.5 percent to $1.085,  and Precinct Property declined 0.4 percent to $1.365.

NZX rose 0.9 percent to $1.11. It will change the price structure of the local stock market in the second half of next year as part of a new strategy aimed at reinvigorating the domestic capital market. 

Outside the benchmark index, Abano Healthcare Group dipped 0.5 percent to $9.95. It posted a 2 percent gain in first-half profit to a record, meeting guidance while announcing the exit from its remaining non-dental business with the $17 million sale of Ascot Radiology.

Veritas Investments rose 9.1 percent, or 0.5 of a cent, to 6 cents. It has agreed to sell its Mad Butcher franchisor business to chief executive Michael Morton for $8 million, less than a quarter of what he sold it to the food and beverage investor in a reverse listing almost five years ago. 


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