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MARKET CLOSE: Oil stocks down, while rural ones flourish

Monday 19th July 2010

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New Zealand stocks fell for their third straight session, following Asian markets lower as weaker-than-expected sales in US earnings stirred concerns over the global economic recovery.

The big news of the day was focussed on the rural sector with a takeover offer for NZ Farming Systems, and a new major shareholder for milk processor Synlait, following a failed IPO last year.

New Zealand Farming Systems (NZX: NZS ) surged 29% to 53 cents, after Singapore's Olam International said it wanted to acquire shares in the company it didn't already own at 55 cents apiece. Olam, which manages a globally integrated supply chain of food an agricultural products, has entered into an agreement to purchase PGG Wrightson's (NZX: PGW ) 11.5% stake in NZFSU, subject to regulatory approval, and is making a full takeover offer on the same terms.

Shares in Wrightson, the country's biggest rural services company, rose 6.4% to 50 cents.

"This is a material deal for the company, which is trading at half of its book value, because the cash flow required to get it in an earnings positive state is just not there," TOWER Asset Management's portfolio manager Paul Robertshawe said. "It should be interesting to see if the deal gets recommended or if the price is too much of a discount."

Bright Dairy & Food, China's third-biggest dairy company by volume, has agreed to buy a majority stake in Canterbury milk processor Synlait Milk for $82 million.

Synlait, which abandoned a planned $150 million share sale last year due to a tepid response, will be a joint owner of its milk processing company in a joint venture with Bright Dairy, though it will keep and operate its farms through a separate company. The deal is Bright Dairy's first investment in processing facilities outside China.

NZX (NZX: NZX ) rose 3.5% to $1.50, whiteware manufacturer Fisher & Paykel Appliances (NZX: FPA ) rose 1.9% to 54 cents, and ING Medical Properties Trust (NZX: ING ), hospital and medical facility property investor, rose 1.7% to $1.22.

Steel & Tube Holdings, New Zealand Oil & Gas and New Zealand Refining paced decliners on the day.

The NZX 50 closed 0.7% down, or 21.2 points, to 2,964.6. Within the index 30 stocks fell, nine rose and 11 remained unchanged. Turnover on the day was $36.1 million.

Japan’s Nikkei was last trading 2.9% down at 9408.4, Hong Kong Hang Seng Index was 1% down at 20052.4 and Singapore’s Strait Times Index was 0.1% down at 2953.7.

“Right now domestic data is looking better than global data but offshore markets are setting the theme and we are pretty much following them although with lower beta,” Robertshawe says. “Domestically the focus is on outlook statements, and how companies say they are going to perform as they go into their peak period to Christmas. Given the proximity to reporting season most of the companies that have negative surprises in store would have announced them already.”

Steel & Tube (NZX: STH ) led decliners with shares down 5.8% to $2.10. NZ Refining (NZX: NZR ) fell 3.2% to $3.29.

NZ Oil & Gas (NZX: NZOfell 3.2% to $1.21 after the company announced that the second of two exploration wells on the highly prospective Tui oil and gas zone had failed to find any evidence of hydrocarbons. The company owns a 12.5% stake in the field.

“The rumours that the Tui well was dry started surfacing late last week, so the announcement wasn’t all that surprising,” Robertshawe said. “However the stock is definitely down on the news, as most of the company’s growth prospects will only come online in the long-term, and for an exploration company it is just lacking real fizzle right now.”

Pan Pacific Petroleum (NZX: PPP ), the only other New Zealand based company with a stake in the Tui oil field, fell 5% to 19 cents on the NZSX.

Restaurant Brands (NZX: RBD ) fell 2.6% to $2.27, Fisher & Paykel Healthcare (NZX: FPH ) fell 1.7% to $2.97, and Auckland International Airport (NZX: AIA ) fell 1.6% to 1.91.

Cavalier (NZX: CAV ) fell 1.6% to $2.46. Robertshawe said the market is looking at all companies with large domestic property holdings cautiously in light of the government’s changes to tax and depreciation, “even well-run ones like Cavalier”.

 

Businesswire.co.nz



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