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MARKET CLOSE: NZ shares fall, Sky TV resumes slide while Xero jumps

Friday 13th May 2016

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New Zealand shares fell on renewed concerns that Sky Network Television will struggle to maintain subscriber numbers in the face of new internet-based rivals, while Xero gained after the cloud-based accounting software firm said its cash burn is slowing and it expects to get to breakeven without seeking more capital.

The S&P/NZX50 Index dipped 6.6 points, or 0.1 percent, to 6,916.57. Within the index, 29 stocks dropped, 14 rose and seven were unchanged. Turnover was $146.8 million.

Sky TV resumed its decline, which was temporarily reversed yesterday, falling 3.4 percent to $3.98 to make it the biggest decliner on the index. 

The stock dropped 26 percent over four sessions since last Friday after saying subscriber numbers were expected to fall further this financial year, causing earnings next year to miss analyst estimates. The pay-TV operator said subscriber numbers dropped 1.5 percent last year to 851,561. It expects to lose 45,000 core residential pay-TV subscribers this year and gain about 25,000 subscribers for its online services such as Neon and FanPass.

"Management's going around talking to the larger shareholders - it's really concentrated in quite a few large players, so if one of them decides they've given up on the story that's potentially a lot of stock to come out," said Craig Stent, director and research analyst at Harbour Asset Management. "From a dividend perspective, the business is still probably ok, it's just whether what's happened with their subscriber growth is something a bit more systemic within the business that they have to try to arrest at some stage. When you've got subs going backwards and you're having to potentially spend more for content, everything's under pressure and costs are going up, it's not a great picture."

Westpac Banking Corp fell 1.9 percent to $31.75, Heartland Bank shed 1.7 percent to $1.17 and A2 Milk Co dropped 1.7 percent to $1.79. 

Warehouse Group declined 1.5 percent to $2.70. The country's largest listed retailer lifted third-quarter sales 5.5 percent to $672.2 million and said it's on track to meet its forecast annual profit.

Auckland-based Warehouse, known for its distinctive 'red shed' big barn discount stores, has spent hundreds of millions of dollars overhauling its outlets and buying new businesses to drive growth in the past few years. It retained its forecast for annual profit excluding one-time items of $61 million to $64 million, which would be up between 7-to-12 percent on last year.

Xero was the biggest gainer, rising 7.3 percent to $16.55, although it traded as high as $17 during the day. The cloud-based accounting software firm may reach positive operating earnings in 2018 and achieve bottom-line profit the following year, according to brokerage First NZ Capital following the release of its full-year results yesterday. 

Xero posted a 67 percent gain in revenue to $207 million while its net loss widened to $82.5 million. The company said it burned through $86 million in the latest year, down from $88 million a year earlier, and its cash holdings stood at $184 million at March 31, meaning it had enough left to reach breakeven without having to raise more capital.

"Obviously, the cash burn's not too bad so the view of them coming back to the market at some stage is probably diminished, and the sales program is not as bad as some people may have thought," Stent said. "They're an ambitious company and there are high expectations, the result was okay and compared to other software-as-a-service type companies, its growth profile is probably not too unattractive."

New Zealand Refining Co rose 3.8 percent to $2.75, Orion Health Group gained 3.3 percent to $4.75, and Meridian Energy advanced 2.6 percent to $2.73. 

Outside the main index, APN News and Media, which is listed on Australia's ASX and the NZX, said today it has raised $160 million from the institutional component of its entitlement offer, with an uptake of 95 percent and the shortfall hoovered up at a premium. The Australian stock rose 12.4 percent to 68 Australian cents at 5:30pm New Zealand time after a trading halt was lifted, while the NZX-listed shares which trade infrequently last changed hands at 70 cents.

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