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MARKET CLOSE: NZ stocks drop as investors dump power companies on smelter scare

Thursday 24th October 2019

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(Oct. 23, 5:53 PM) New Zealand shares dropped as Contact Energy, Meridian Energy and the other power companies were sold off sharply on the prospect of the Tiwai Point smelter facing potential closure. 

The S&P/NZX 50 Index fell 236.60 points, or 2.1 percent, to 10,853.79. Within the index, 30 stocks declined, 10 rose, and 10 were unchanged. Turnover was $228.9 million, of which Meridian alone accounted for $57.4 million. 

The electricity generator-retailers all fell after Rio Tinto, which controls New Zealand Aluminium Smelters, said it was reviewing the smelter's future after rejecting Meridian's proposed pricing. The smelter secured a $30 million sweetener in 2013 when it strong-armed the then-government during power supply negotiations. Energy Minister Megan Woods today said the government won't provide more financial support.

Meridian chief executive Neil Barclay said the company put forward a number of proposals and concessions to the smelter's owner, but that its offer fell short. He said he was still open to negotiations. Meridian dropped 8.7 percent to $4.95 on a volume of 11.5 million shares, more than eight times its 1.4 million 90-day average. 

Contact was hit even harder, leading the market lower as it fell 9.7 percent to $7.69 with 3.7 million shares changing hands, well up on its 1 million average. Mercury NZ dropped 8.4 percent to $4.995 with 4.8 million traded, Genesis Energy fell 6.1 percent to $3.06 and Trustpower was down 3 percent at $8.34.

"There's big money out there running the numbers on this and the reaction is pretty fierce," said Grant Davies, an investment advisor at Hamilton Hindin Greene. 

"The share prices have been such that there's something to give back and they're only going back to where they were at the end of August." 

Those power companies are all among the country's top 20 stocks and weighed on the broader index, which was the worst performer across Asia. South Port New Zealand, which counts the smelter as its biggest freight customer, slipped 0.6 percent to $7.85. 

SkyCity Entertainment Group was down 0.5 percent at $3.85 as the fire at the international convention centre building site raged on for a second day. Lead contractor Fletcher Building rose 1.3 percent to $4.71, with 2.3 million shares changing hands. The chief executives of both companies fronted a briefing today, saying it was too early to make any judgements on the extent of the damage and that they were both covered by insurance. 

Davies said the companies unexpectedly outperformed the broader index today, but that there were still many unknowns. 

"We still don't know what the damage is, but it looks pretty extensive," he said. 

Tourism Holdings declined 1.9 percent to $3.58 after it postponed its annual meeting in downtown Auckland because of the fire. 

Synlait Milk posted the day's biggest gain, up 3 percent at $9.78 on a volume of 59,000 shares, less than its 78,000 average. Ebos Group rose 1.6 percent to $25 and Pushpay Holdings increased 1.3 percent to $3.24. 

Of other stocks trading on volumes of more than a million shares, Spark New Zealand fell 3.2 percent to $4.415, Freightways declined 1 percent to $7.90, Precinct Properties New Zealand was unchanged at $1.88 and Kiwi Property Group was unchanged at $1.67. 

Auckland International Airport fell 1.8 percent to $9 after affirming earnings and capital spending guidance at today's annual meeting. 

Air New Zealand decreased 0.7 percent to $2.805 after saying it would drop its Los Angeles-London route in October next year, and at the same time introduce an Auckland-New York route. 

Property For Industry fell 1 percent to $2.425 after it said it sold an Albany property for $33 million as part of a planned sale programme of non-industrial properties. 

NZX slipped 0.8 percent to $1.27 after it reported a 13 percent increase in third-quarter revenue from continuing operations. Year-to-date revenue was down 1.5 percent at $51.2 million due to the year-earlier period including revenue from the now-sold, AgriHQ, Farmers Weekly and Australian Grain Information Unit businesses. 

Outside the benchmark index, Serko dropped 11 percent to $3.42 before trading was halted. The dual-listed travel booking software developer told the ASX that it was at an advanced stage of finalising a material transaction that included a proposed capital raising. 

Augusta Capital fell 1.9 percent to $1.57 after it said it expected first-half earnings to be materially lower than the prior year due to a lack of capital raisings, and two developments that needed investment. 

Vital, formerly TeamTalk, declined 2.2 percent to 88 cents after it said earnings before interest, tax, depreciation and amortisation would be $8.7-11 million in the year ending June 30, 2020, down from the $11.1 million reported in 2019. The downgrade reflected the extra cost of transforming the business and switching customers to new networks. 

TIL Logistics was unchanged at $1.19 after it told shareholders it expected a better performance in the 2020 financial year on organic growth, new customers, and extra warehousing capacity, despite a softer business environment. 


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