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MARKET CLOSE: NZ shares up broadly on dollar weakness, TradeMe and A2 gain while Fonterra sinks

Friday 10th August 2018

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New Zealand shares gained on continued market strength from the weaker Kiwi dollar, led higher by Trade Me Group and A2 Milk Co, while Fonterra Shareholders Fund dropped as its expected final dividend was removed.

The S&P/NZX50 Index rose 70.42 points, or 0.8 percent, to 9,010.61. Within the index, 40 stocks rose, seven fell and three were unchanged. Turnover was $111 million.

Greg Easton, investment adviser at Craigs Investment Partners, said it was a fairly positive day for the benchmark index, with yesterday's boost from the weaker New Zealand dollar following the more dovish than expected official cash rate outlook from the Reserve Bank carrying over.

"Some of the biggest movers are the dual-listed NZ-Australia stocks. It could be that Australian investors are seeing a bit of value with the Aussie dollar buying $1.11 versus under $1.10 a couple of days ago," Easton said.

The notable exception to today's strength was Fonterra Shareholders Fund units, down 2.5 percent to $4.98. Fonterra Cooperative Group doesn't expect to pay a final dividend this year, as it bolsters its balance sheet after paying Danone over the 2013 botulism scare and writing down its Beingmate Baby & Child Food investment.

The dairy processor affirmed normalised earnings per share guidance of 25-30 cents, implying earnings of $403 million to $484 million, but indicated it's likely to be at or slightly below this range, and anticipates dividends will only be the 10 cents per share already paid in April. It also trimmed its 2017/18 forecast farmgate milk price to $6.70 per kilogram of milk solids from $6.75/kgMS. 

"It's a chance for the new chairman to show his stance on capital structure and balance sheet strength and he has emphasised that it's all about strengthening the balance sheet after what has been a pretty terrible year in terms of cash coming out for no good reason. They mentioned specifically the payment to Danone and the impairment on the Beingmate investment," Easton said. 

"This is the first time in recent years that they've been so severe on withholding cash, and it is a bit of a surprise because they have been in a position where they've had to help farmers out to find other ways to get cash when the payout has been low. This is a bit of a turnaround on that behaviour."

Rival Synlait Milk dropped 1.4 percent to $10.75, while Fletcher Building declined 0.9 percent to $6.92.

Dual-listed Trade Me Group led the index higher, up 3 percent to $4.79, with A2 Milk Co rising 2.7 percent to $10.77 and Arvida Group gaining 2.3 percent to $1.33.

Skellerup Holdings rose 2 percent to $2.03 and NZX gained 1.9 percent to $1.10.

(BusinessDesk)

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