MARKET CLOSE: NZ stocks rise, as earnings glow boosts Summerset, Contact; Fletcher rallies on positive sentiment

Tuesday 15th August 2017

New Zealand shares rose, led by Contact Energy for a second day as upbeat earnings bolstered the power company, while Summerset Group's result boosted demand for its shares. Fletcher Building rallied ahead of tomorrow's report, while Heartland Bank gave up yesterday's gains.

The S&P/NZX50 Index advanced 51.8 points, or 0.7 percent, to 7,813.74. Within the index, 27 stocks rose, 14 fell and nine were unchanged. Turnover was $211 million.

"There's a general healthy tone to the market today, a softening in the rhetoric overseas has probably helped and that combined with a pretty good result on Summerset helped some stocks recover from yesterday," said Rickey Ward, NZ equity manager at JBWere. "The reporting season so far appears to be delivering on pretty high expectations."

Contact Energy led the benchmark higher for a second consecutive session, up 3.1 percent to $5.71. The electricity generator-retailer yesterday reported a 10 percent fall in underlying earnings to $141 million for the year to June 30, and 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.

Summerset gained 3.1 percent to $5.05. New Zealand's second-largest retirement village developer posted a 45 percent gain in first-half underlying earnings to $35.7 million and reiterated that full-year profit may increase by a third as it ramps up development.

"It was well ahead of market expectations. Looking at their underlying NPAT of $35 million and change, compared to a market that was expecting about $30 million - that's roughly a 17 percent gain," Ward said. "The share price has re-rated; most people price them on a price-to-book of about two times, the book value has gone up about 17 percent. It had rallied into the result, put it on some sort of multiple and you get roughly where the share price has rallied to."

"The overarching thing is it is potentially still susceptible to house price weakness, should any policy or anything come through to make that occur. I don't think anybody's expecting a major decline in the near future so it's enough to get everyone to buy again."

Fletcher Building rose 1.7 percent to $8.20, ahead of its full year accounts due tomorrow. The stock has suffered this year after twice downgrading profit expectations due to cost blowouts on two major projects, with chief executive Mark Adamson leaving last month when the second downgrade was announced.

"You're seeing some information coming out, Summerset talked about an escalation in construction costs of 5-to-10 percent," Ward said. "That's consistent language that Fletcher has been talking about, a rapid rise in labour costs creating a few problems, and that leading to delays in completion of projects. There seem to be consistent messages coming from anyone linked to construction, so people are becoming more comfortable it's not just Fletcher Building having issues - it's a structural problem."

NZX gained 0.8 percent to $1.20. The stockmarket operator more than doubled first-half profit to $7.95 million though revenue dipped slightly, with operating expenses falling as it streamlined operations as it seeks to focus its business.

Heartland was the worst performer, down 2.1 percent to $1.86, after a 2.2 percent gain yesterday on its earnings pushed the stock to a record. Freightways dropped 1.8 percent to $7.81 and Ebos Group fell 1.4 percent to $17.45.

(BusinessDesk)

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