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MARKET CLOSE: NZ shares rise, Sky TV, Orion gain while Tower extends slide

Wednesday 25th May 2016

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New Zealand shares rose after Sky Network Television chief John Fellet said he'd resisted the temptation to acquire media assets and was await advice from Citibank that may include making a capital return. Orion Health Group also gained while Tower extended its decline.

The S&P/NZX 50 Index gained 35.38 points, or 0.5 percent, to 6,908.04. Within the index, 24 stocks rose, 17 fell and nine were unchanged. Turnover was $189.4 million. 

Sky TV gained 3.1 percent to $4.29. Analysts estimate the company could free up $400 million when its capex programme winds down in about six months and Fellet told BusinessDesk there was a question about what to do with that cash flow.  Returning money to shareholders could be by way of a share buyback or increased dividends, he said. The pay-TV operator slid as low as a $3.98 after it said this month that subscriber numbers are expected to fall further this financial year, causing earnings next year to miss analyst estimates.

"It's coming in for a bit of bounce-back buying - it was possibly a bit overdone around the $4 mark, it bounced at those sort of levels last time as well," said James Smalley, director at Hamilton Hindin Greene.

Orion led the index higher, gaining 4.3 percent to $4.82. On Monday, the software developer said it was targeting a return to profit in 2018 after reporting a 26 percent increase in annual revenue as a weaker New Zealand dollar bolstered returns and a smaller tax expense helped narrow the health software developer's loss. The stock has risen 44.4 percent this year.

"It's been a continued bounce back up over the last month and a half on the back of a few contract wins helping to regain confidence that was quite badly dented post-IPO," said James Smalley, director at Hamilton Hindin Greene.

Xero rose 2.7 percent to $16.95, Heartland Bank advanced 2.5 percent to $1.25, and Auckland International Airport gained 2.3 percent to $6.36. 

Comvita advanced 0.6 percent to $12.87. The New Zealand manuka honey products maker is linking up with Blenheim-based apiary operator Putake Group to form a South Island-based honey business to meet global demand for manuka honey.

Tower dropped 5.8 percent to $1.47. It tumbled nearly 12 percent yesterday after the general insurer posted a wider first-half loss of $8.7 million, including an impairment charge against IT, and little changed gross written premium income, raising questions about its ability to compete with larger rivals.

"A number of brokers are revising down their valuations so the stock's off on quite good volumes for them," Smalley said. "They've really displeased investors, particularly as they've given the impression to some brokers that their exposure to the Christchurch market was done and dusted, and then as every announcement comes out there are more and more write-offs. That was perhaps the biggest disappointment investors felt in the stock. On long-term forward multiples, they are starting to look a little over-sold."

Air New Zealand shed 1.9 percent to $2.02, and has declined 30 percent this year after it hit a 13-and-a-half-year high in January when oil prices hit record lows. 

"It's pretty much lost a dollar in a little over a month, it's really taken the winds out of investors sales," Smalley said. "It's a bit of a reversed perception about oil price which had been a massive tailwind for the company and all airlines - I daresay if you did an index of airline stocks they'd look the same. The market is supposed to be looking twelve months in advance, maybe investors are now starting to price in that they've already hit their sweet spot and things are starting to get a lot tougher on the competition front."

Precinct Properties fell 1.5 percent to $1.28.

Steel & Tube Holdings dipped 1.5 percent to $2.01. The NZX-listed steel products distributor, which is under fire for sales of seismic steel mesh that wasn't independently tested, last week cut its full-year guidance and said underlying earnings may fall 10 percent to 15 percent as margins contracted and it incurred costs related to quality issues for the mesh.

"That's the lowest it's been since late 2011 - it's continuing to be affected by bad publicity," Smalley said. "They might be in a bit of danger at the next index re-rating of dropping out of the top 50 index, investors obviously look for that type of scenario."

Outside the main index, Arvida Group gained 6.3 percent to $1.18. The company, which operates 21 retirement villages and aged care facilities, reported annual earnings ahead of its prospectus forecast and said it was confident of further gains in 2017.

AFT Pharmaceuticals fell 0.7 percent to $3. The Auckland-based drug developer posted a $8.9 million operating loss for the year to March 31, its first result since listing on the NZX and ASX last December, and in line with analyst expectations.

BusinessDesk.co.nz



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