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MARKET CLOSE: NZ shares up as Gentrack hits record, Mercury, Contact, Fletcher gain

Wednesday 2nd May 2018

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New Zealand shares gained, with Gentrack Group hitting a record and electricity companies Mercury New Zealand and Contact Energy gaining.


The S&P/NZX 50 Index rose 58.27 points, or 0.7 percent, to 8,494.24. Within the index, 27 stocks rose, 13 fell and 10 were unchanged. Turnover was $146.6 million.


A2 Milk led the index higher, up 3.5 percent to $12.54, with Spark New Zealand rising 2.3 percent to $3.53 and Kathmandu Holdings up 1.9 percent to $2.66.


Gentrack rose 2.9 percent to $7.40, its eighth day of gains in a row. 


"They're just kicking goals, they've put on the best part of $1 in just over a week and no-one's wanting to sell it. They're executing on their strategy and everyone wants a piece of it," said Greg Easton, investment adviser at Craigs Investment Partners. "It's a quality stock that has been left behind and is presenting some relative value compared to the broader market."


Mercury New Zealand rose 1.4 percent to $3.23.  The electricity generator and retailer will spend as much as $50 million buying back some of its shares, enabling it to return capital to shareholders and rebalance its capital structure. Mercury will buy up to 20 million ordinary shares on the NZX main board between May 7 and June 30, which will be held as treasury stock. Easton said the news was a good sign of confidence from the board.


Other gentailers also improved, with Contact Energy up 0.9 percent to $5.48 and Genesis Energy rising 0.9 percent to $2.30. Meridian Energy was unchanged at $2.975.


Yesterday, Meridian, Genesis and Contact rose on news that Meridian has signed a contract with New Zealand Aluminium Smelters to agree the price of electricity for an additional 50 MWh per hour (438 gigawatt hours per year) at Tiwai Point in Southland. 


The contract, underwritten by Meridian and supported by contracts with Contact, Genesis and Mercury, runs until December 2022 and facilitates NZAS re-starting its fourth potline and increasing production by 9.2 percent. 


"That announcement yesterday about the Tiwai smelter really gave all the electricity generators a nudge up," Easton said. "That's been holding a high level of uncertainty over everything ever since the mixed-ownership model kicked off. The fact that they're expanding and not leaving was a surprise, and it has been taken very well."


Fletcher Building rose 0.7 percent to $6.24. The company completed the institutional component of its $750 million capital raise earlier this month, generating gross proceeds of $515 million, and the retail component of Fletcher's capital raise opened on April 23 and closes on May 11.


"We're still fielding a lot of inquiry about the rights issue, that's probably dominating our discussions with clients at the moment. On the whole, I think most investors are feeling pretty let down by the company and not necessarily willing to throw more money at it," Easton said. "The broader market has responded pretty well to this whole thing, I think the shares have exceeded expectations in terms of where it's trading."


"The shares have traded higher since [the institutional bookbuild] so it will be interesting to see how the next bookbuild goes, which is where all of the retail shareholders will realise some value if they haven't taken up their rights," Easton said. "We haven't seen much good news out of the company for a while. There's an element of hopeful speculation they will turn things around very quickly."


The dual-listed Australian-owned banks were mixed amidst news of increased scrutiny by local regulators, with Westpac Banking Corp up 0.6 percent to $31.20 and ANZ Banking Group down 0.2 percent to $29.30.


The governor of the Reserve Bank, Adrian Orr, and the chief executive of the Financial Markets Authority, Rob Everett, called representatives of New Zealand's largest banks, including ANZ and Westpac, together in Wellington yesterday. They told to the chief executives to demonstrate clearly why their customers should believe their business practices differ from their Australian parents, following a string of revelations at an Australian banking royal commission of inquiry.


"Those share prices in New Zealand are very much dictated by trading in Australia because they are the exact same shares, so I don't think the FMA having a look at New Zealand operations will have a big impact in the context of what has been uncovered in the royal commission thus far," Easton said. 


Heartland Bank was the worst performer, down 1.1 percent to $1.78, while Precinct Properties New Zealand fell 0.8 percent to $1.265 and Ryman Healthcare dropped 0.8 percent to $10.42.



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