MARKET CLOSE: NZ shares rise, led by Contact on earnings outlook; Heartland, Opus gain; Freightways falls

Monday 14th August 2017

New Zealand shares gained as Contact Energy and Heartland Bank rose on positive earnings, while Freightways dropped on concern over margin pressure. Opus International Consultants soared on the prospect of a takeover.

The S&P/NZX50 Index rose 42.83 points, or 0.6 percent, to 7,761.94. Within the index, 27 stocks rose, 17 fell and six were unchanged. Turnover was $123 million.

Contact led the benchmark higher, rising 3 percent to $5.54. The electricity generator-retailer reported a 10 percent fall in underlying earnings to $141 million for the year to June 30. The company also announced it would be moving to a new dividend policy with payouts based on 80-to-90 percent of free cash flow which would let it make larger returns than under the existing policy.

"It could be said the result was a disappointment but it was well signalled, the market has said it has been known for a while that hydro storage in the South Island has been very low," said Peter McIntyre, investment adviser at Craigs Investment Partners. "The outlook for 2018 is very positive, it's based around cost reduction, retail price increases and better distribution of cash. The market has really taken that on board - the result was well signalled but the outlook probably wasn't, hence the reaction today."

Genesis Energy rose 2.9 percent to $2.47 while Fletcher Building gained 1.8 percent to $8.06.

Heartland gained 2.2 percent to a record $1.90. The bank boosted annual profit 12 percent to $60.8 million as it managed to maintain relatively wide margins while expanding its loan book across all three of its main target sectors. Heartland expects annual earnings to keep rising in the current financial year, forecasting net profit of between $65 million and $68 million in the year ending June 30, 2018.

"They've given guidance 12 percent up on PCP, there has also been an improvement in the cost ratio so it's a good earnings result. They've been able to build a really good track record," McIntyre said.

Freightways was the worst performer, dropping 1.9 percent to $7.95. The shares fell despite a 22 percent lift in annual profit on the strength of volume growth and margin in the express package and business mail division, and an upbeat outlook for the current financial year.

"Really solid volume growth, but it has come at a cost and that has been lower margins," McIntyre said. "There are some really good parts to that result, but investment is going to have to go back into the business to make good on the earnings moment that they have."

Outside the benchmark index, Opus soared 72 percent to $1.70. WSP Global Inc, a Canadian listed consultancy firm, has made a "very full" offer of $1.78 per share, more than 10 times 2016 earnings for Opus, in what it calls "a very transformative acquisition for the region". The company also released its earnings after trading closed. It posted an improved first-half profit, at $6.2 million in the six months ended June 30, from $900,000 a year earlier, as a gain in Australia and New Zealand made up for losses in other regions. Sales fell to $226.8 million from $236.7 million.

Synlait Milk was unchanged at $4.65. The NZX-listed milk processor said regulatory approval for its 'grass-fed' infant formula in the US is taking longer than expected. The FDA process, which had been expected to be completed this year, is now expected to take a further four-to-12 months.

The stringent process, known as a New Infant Formula Notification (NIFN), includes a range of trials, audits and documentation. The company has previously said that significant manufactured volumes for the US market weren't expected until the 2018 financial year.

"The understanding at the moment is that they can still sell their stage two formula without FDA approval," McIntyre said. "At this stage, it doesn't seem to be material, but it's probably something they want to get sorted out as quickly as possible."

(BusinessDesk)

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