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MARKET CLOSE: NZ shares mixed, Air NZ hits 2yr low while Tegel, Fletcher gain

Thursday 13th October 2016

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New Zealand shares were mixed as Air New Zealand hit a two-year low in the face of increased competition, while Tegel Holdings and Fletcher Building climbed.

The S&P/NZX50 Index gained 12.6 points, or 0.2 points, to 7,120.05. Within the index, 25 stocks fell, 13 rose and 12 were unchanged. Turnover was $131.7 million.

Air New Zealand was the worst performer on the index, down 4.7 percent to $1.715, and down 32 percent this year.

"There are really three headwinds they're facing," said Matt Goodson, managing director at Salt Funds Management. "First, in the last few days there has been a stronger oil price. Then overnight there was a dire warning from Cathay Pacific basically saying they're going back to scratch and reviewing their business - they're having much more direct competition from Chinese airlines who seem more interested in size than profitability. There's also more evidence of rampant competition on routes affecting elements of Air New Zealand's business."

Xero fell 3.1 percent to $17.60, a three-and-a-half month low, and has dropped 11.3 percent in the last week. 

"It's interesting to see Xero continuing to fall, they're now down quite sharply," Goodson said.  The only recent news has been American venture capitalist Peter Thiel, co-founder of PayPal and an early Facebook investor, reducing his stake in the software-as-a-service company to 5.7 per cent from 6.7 per cent at the beginning of September.

Heartland Bank fell 2 percent to $1.51, Westpac Banking Corp dropped 1.8 percent to $32.35, and Australia & New Zealand Banking Group declined 1.8 percent to $29.67. 

Tegel Holdings gained 1.4 percent to $1.47. The shares have dropped over the past month as Ingham Group, Australia's largest chicken processor and the second-largest in New Zealand, heads for an initial public offering and ASX listing. Tegel was taken public by private equity firm Affinity Equity Partners in May this year, and listed at $1.55, rising as high as $1.78 in August.

In September, the cost of chicken breasts declined 4.2 percent to $13.52 per kilogram, the lowest level since October 2007, Statistics New Zealand said today.

"Tegel has finally caught a bid despite quite a weak outcome for chicken prices in the food price index today," Goodson said.

While there had been "some ridiculous speculation" that people have been shorting the stock ahead of the Inghams float, Goodson said from what he's seen it's more concern about the very low poultry price and the earnings implications of that, even if they are fleeting.

"Obviously they won't stay low forever. Poultry prices are very much driven by corn and soy prices, and those remain extremely low globally, so it would need a turn up in those for the price of chicken to rise," he said.

Fletcher Building was the best performer, up 4.6 percent to $10.47, while Meridian Energy rose 2.2 percent to $2.75 and Mercury New Zealand gained 2 percent to $3.02.

Ryman Healthcare rose 0.1 percent to $8.95. The country's biggest listed retirement home operator has bought a former school in the Coburg suburb of Melbourne to redevelop. The 1.2-hectare site is about 10 kilometres from the central business district and next to the Coburg Lions AFL ground and a reserve, the Christchurch-based company said in a statement. The site had previously been approved for a large residential development. 

"It's interesting timing because they haven't got development approval for their second village, and clearly it's a red-hot market in Melbourne," Goodson said. "Their first village is showing very good signs, but the jury's still out on their ability to deliver with the rest."

New Zealand Refining was unchanged at $2.40. The country's only oil refinery operator has decided to keep its 74 percent stake in Independent Petroleum Laboratory, ending a sale process that began last year. The lab testing company's assets were valued at $5.2 million as at June 30, with liabilities of $1.5 million. BP Oil New Zealand holds the remaining 26 percent. 

Outside the benchmark index, Scott Technology was unchanged at $2.10, and is up 41.9 percent this year. The industrial automation firm reported a record $11 million in full-year pre-tax profits as it benefits from rising interest globally in automation as companies seek to reduce costs and boost productivity.

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