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MARKET CLOSE: NZ shares down, Westpac and A2 drop while NZ Refining gains on throughput margins

Wednesday 18th January 2017

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New Zealand shares fell, with volumes still low. Westpac Banking Corp, A2 Milk Co and Tegel Group Holdings all dropped though New Zealand Refining Co gained.

The S&P/NZX 50 Index dipped 3.7 points, or 0.1 percent, to 7,059.28. Within the index, 26 stocks fell, 17 rose and seven were unchanged. Turnover was $103.3 million.

"There were some mildly negative leads overnight, mainly from Europe," said James Smalley, a director at stockbroker Hamilton Hindin Greene. "Asia's pretty mixed, it's down but not massive amounts. It's pretty quiet volumes-wise at the moment, even the stocks that have fallen the most have pretty low volumes."

At 5:10 pm, New Zealand time, Australia's S&P/ASX 200 was down 0.6 percent, Japan's Nikkei 400 had fallen 0.2 percent and Hong Kong's Hang Seng was up 1.1 percent. 

Westpac Banking Corp led the index lower, down 1.8 percent to $33.80, while Tegel Group Holdings fell 1.5 percent to $1.36. The poultry producer listed at $1.55 in May last year. 

A2 Milk Co dropped 1.7 percent to $2.27. "It was bouncing back after some selldowns on news from associated businesses, it was getting quite a lot of media talk with Bellamy's," Smalley said. "They closed at $2.08 about a week and a half ago, had quite a good bounce on the 11th so it may just be a few bargain hunters coming in, that rally seems to have petered off today," 

New Zealand Refining Co was the best performer, up 1.9 percent to $2.75. The oil refinery operator said its annual throughput hit record levels in 2016 and its fee income for the year was the third largest earned by the company in the past 10 years. 

"It's a very good announcement, particularly on margins," Smalley said. "The increased demand for refining capacity will lead to higher margins - if there's a lot of slack refining capacity your margins are lower. That's what flows through to NZ Refining, they've had a very good November-December, and that's led to it being the best performer today. It is a company whose fortunes live and die by those margins, sometimes the south-east Asian refining market can get bounced around but they've obviously had a good couple of months."

Air New Zealand rose 1.6 percent to $2.24, Ryman Healthcare gained 1.5 percent to $8.40, and Chorus rose 1.2 percent to $4.11.

Xero fell 1 percent to $18.32. The cloud-based accounting software company says it is still considering whether chairman Chris Liddell's position is compatible with his new role as a White House adviser in the Trump administration and will update the market when a decision is made.

Units in Fonterra Shareholders Fund gained 0.6 percent to $6.25, their highest level since November 2014. Dairy product prices inched higher at the Global Dairy Trade auction overnight, stemming two consecutive declines. Whole milk powder slipped 0.1 percent, while rennet casein increased 4.9 percent and butter rose 1.6 percent.

"Higher [milk] prices are not good for it, what is better is the secondary products - cheese, butter, casein. Maybe investors are thinking milk powder is relatively flat but prices for those secondary products are improving," Smalley said.

Infratil gained 0.5 percent to $2.91, a three-month high. "It's bounced about 11.5 percent since December when it hit almost 2 and a half year lows," Smalley said. "There may be a bit of bargain hunting there, a lot of its investments are doing pretty well - it's got some solid businesses generating some significant cashflows. That selldown came after they made an investment into renewable energy in the States, probably not a great time given who won the US election and his theory on climate change."

Outside the main index, Pushpay dropped 4.7 percent to $1.62. The shares dropped sharply in December, triggering a price enquiry from stockmarket operator NZX, but recovered in early January before the company gave a third-quarter trading update last Wednesday.

"It's one of those stocks you've got to be quite patient with. You've had the selldown, the bounce back, and maybe what we've seen is some of the luckier investors who did buy down around those $1.30, $1.40 levels, they've been exiting at $1.80 and that's what pushing the stock down to where it is now," Smalley said. "It's going to live and die by its cashflows, movements like this aren't linked too closely to the underlying business - the share price is still suffering the after effects of that big selldown."

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