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MARKET CLOSE: NZ shares fall from recent highs, led lower by Fisher & Paykel on earnings downgrade

Monday 3rd September 2018

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New Zealand shares dropped, led lower by Fisher & Paykel Healthcare and Z Energy while A2 Milk rose amidst new Chinese e-commerce legislation.

The S&P/NZX50 Index fell 55.91 points, or 0.6 percent, to 9,257.29. Within the index, 21 stocks rose, 19 fell and 10 were unchanged. Turnover was $97.2 million.

"It's pretty light volume in a market that's trading at an all-time high, effectively, so it's not surprising to see a bit of profit taking come out on the back of an amazing August for most people," said Rickey Ward, NZ equity manager at JBWere. 

Fisher & Paykel Healthcare led the index lower, dropping 3.9 percent to $15.75. It warned the cost of contesting the latest patent allegations from rival ResMed will cut annual earnings by as much as $10 million in a far-ranging dispute across multiple jurisdictions. 

F&P said it will contest complaints in the US International Trade Commission (ITC) and US District Court for the Southern District of California, and cut forecast profit to $205 million -$210 million in the year ending March 31 from a previous forecast of $215 million due to the cost of defending the litigation. The companies have been locked in litigation since 2016 spanning the US, UK, Europe, NZ and Australia.

"When you start to have bigger players issuing litigation, it means you're annoying them - it's a coming-of-age for Healthcare," Ward said. "They clearly are on the radar for incumbents, and this is a way of life for them, big companies do this all the time so investors have got to get used to it."

Z Energy dropped 2.2 percent to $7.05, Ryman Healthcare fell 1.9 percent to $13.82 and Trade Me Group declined 1.9 percent to $5.27.

Sky Network Television was the best performer, up 2.3 percent to $2.20. Synlait Milk, which supplies A2, rose 1.6 percent to $13.

A2 Milk Co rose 1.4 percent to $12.80. It said it welcomes new e-commerce law in China, as it awaits further information. A2 said the new law creates a broad framework for e-commerce, and it will keep working with its partners to respond to the new law and yet-to-be-released guidance. 

"Today's announcement didn't provide any clarity about how you value the changes in the law around e-commerce, it's a difficult company to get insight into but the momentum is very good," Ward said. 

Restaurant Brands New Zealand gained 0.1 percent to $7.71. It is exiting its Starbucks coffee business after two decades of operation after the US brand failed to take off as anticipated, selling the fixed assets of the chain for up to $4.4 million to local hospitality business Tahua Capital.

Summerset Group was unchanged at $7.78. It plans to sell up to $100 million of seven-year, fixed-rate bonds as it cuts it reliance on bank debt. The bond offer is expected to open the week of Sept. 10 and Summerset said it would provide more details at that time.


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