MARKET CLOSE: NZ shares rise, led by A2 on formula update, Tourism Holdings gains on acquisition

Wednesday 21st December 2016

New Zealand shares edged higher, led by A2 Milk Co after it reassured the market about its infant formula business, while Tourism Holdings gained on a US acquisition. Intueri Education Group sank by a fifth after missing out on Australian government funding.

The S&P/NZX50 Index advanced 13.08 points, or 0.2 percent, to 6,802.75. Within the index, 26 stocks fell, 19 rose and five were unchanged. Turnover was $139.7 million.

A2 Milk led the index, up 5.9 percent to $2.16. The milk marketer played down fears about the infant formula market stemming from ASX-listed rival Bellamy's Australia's extended trading halt. The stock fell as much as 15 percent after Bellamy's entered the trading halt last Monday. Bellamy's was to have lifted the trading halt today but now expects the suspension to stay in place until Jan. 13, pending negotiations with key suppliers and manufacturers that could affect earnings.

"They've added a bit of flavour by talking about their value proposition in the marketplace, their supply contracts and sales channels, risk minimisation - basically trying to allay any fears investors might have from what's happening with Bellamy's. It was just confirmation their business is sound and growing, it's distancing itself," Peter McIntyre, investment adviser at Craigs Investment Partners said.

"A2 really was the angel of the market, it's been from $2.61 down to $2.00 for the month rolling which is a wild swing for them - it tends to meet resistance around the $2 mark," McIntyre said. "A lot of institutional investors took some risk off the top, but management decided enough is enough and they need to put out a positive statement. The proof will be when they trade again tomorrow, how much further uplift they'll get. It's a volatile stock and it trades in a wide band, but the updates they've given so far have been very reassuring."

Tourism Holdings rose 5.3 percent to $3.59. It will pay US$65 million for US campervan rental and sales business El Monte Rents to expand its operations in the world's largest recreational vehicle market. The acquisition, for an enterprise value of $94 million including transaction costs, will be funded through $82 million of debt from its existing lenders and through the issue of 3.4 million Tourism Holdings shares.

"On the surface it looks earnings accretive, though it certainly increases their debt burden - debt-to-equity will be around 50 percent - but they haven't diluted the shareholder base by any real significant percent," McIntyre said. "The market really liked that early on but it's starting to weaken off - it wasn't that long ago that debt got them into trouble, and they've been paying down debt for a few years. Institutions will have some confidence about the CEO's expertise and ability to pull this off."

Contact Energy was the worst performer, down 1.9 percent to $4.65, while Restaurant Brands New Zealand dropped 1.8 percent to $4.97 and Stride Property declined 1.7 percent to $1.71.

Fonterra Shareholders Fund rose 0.3 percent to $5.98. Fonterra Cooperative Group's New Zealand milk collection was down 5.7 percent on the year in the six months to Nov. 30 as dairying regions were hit by unfavourable weather conditions.

Outside the benchmark index, Intueri Education Group fell 20 percent to 3.6 cents. It said the Australian Department of Education and Training declined its application for an A$6 million uplift in VHF funding for its Conwal unit and the company slashed 2016 earnings guidance by that amount to $3.2 million as a result. Intueri shares have tumbled 94 percent this year. It listed on May 2014 at $2.35.

Airwork Holdings fell 1.6 percent to $4.82. Zhejiang Rifa Holding Group's partial takeover offer for Airwork of $5.40 is near the top of independent adviser Grant Samuel's assessed value range for the shares and was recommended by Airwork's board.

Abano Healthcare dipped 0.1 percent to $8.20. It cut 3 cents from the independent valuation it commissioned to allow for executive incentive shares while confirming a 73 percent gain in first-half profit to $5.9 million. The Auckland-based company is fending off a hostile takeover from Healthcare Partners, an entity owned by cornerstone shareholders Anya and Peter Hutson and James Reeves, which wants to lift its stake to 50.01 percent paying $10 a share, including Abano's interim dividend.

BusinessDesk.co.nz

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