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MARKET CLOSE: NZ shares gain for fourth day; Telecom up on separation

Monday 2nd August 2010

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New Zealand shares rose for a fourth session after Telecom said it will consider structural separation to participate in the government’s broadband plan and KiwiSaver managers added to local stock holdings.

The NZX 50 rose 9.54, or 0.3%, to 3044.17, the highest close since late June. Within the index, 29 stocks gained, 10 fell and 112 were unchanged. Turnover was a lower-than-average $43.5 million, reflecting a bank holiday in Sydney that kept many Australian investors away.

Telecom (NZX: TEL ) rose 0.5% to $2, the highest close since May 20. The phone company has proposed structural separation into two units that would carve network business Chorus out as a standalone company.

“No sacred cows have been spared and no assumptions have been left unchecked as we have worked through this stage of what is a challenging but critically important issue,” said chief executive Paul Reynolds in a statement. The de-merger proposal will need at least 75% of shareholders to give it the nod of approval.

Telecom “has gone from aggressively resisting to playing ball” with Crown Fibre, says BT Funds Management's Paul Harrison, to co-operating. The shares plumbed a two-decade low in June and their recovery since then probably reflects the company “offering a better probability of a positive outcome.”

PGG Wrightson (NZX: PGW ) gained 3.8% to 55 cents. The nation’s biggest rural services company has suspended talks on ceding its management contract for NZ Farming Systems Uruguay to Olam International as part of the Singapore group’s proposed takeover of Farming Systems.

Shares of Farming Systems (NZX: NZS ) were unchanged at 56 cents, which is 1 cent above the offer price Olam is proposing.

Harrison said there is evidence of some money flowing into the market on very thin volumes, which is moving prices about. That includes money from KiwiSaver funds holding too much cash in their equity portfolios, he said.

Among gainers, Fisher & Paykel Appliances (NZX: FPA ) climbed 1.9% to 54 cents and Michael Hill International (NZX: MHI ) rose 1.5% to 68 cents.

The Warehouse (NZX: WHS ) rose 1.4% to $3.58.

Investors are looking ahead to earnings season, which starts in earnest this month, amid expectations the results will show a continuation of improvements in controlling costs rather than revenue growth, Harrison said.

“The second half was still pretty tough for a lot of companies,” he said. “And people are starting to wind back expectations for next year as well.”

Pacific Edge Biotechnology (NZX: PEB ) soared 14% to 25 cents. The cancer diagnosis firm has a “pipeline of new products coming through” after winning New Zealand patents for gastric cancer detection and melanoma prognostic technology, chief scientist, Parry Guilford said.

Telstra (NZX: TLS ) rose 1% to $4.07 on the NZX today after it announced on Friday that it would take a A$170 million impairment charge against its CSL New World unit in Hong Kong. That may wipe out profit growth over the past 12 months. The company said its previous forecast for "low single digit" EBITDA growth didn’t include the impairment and earnings may now weaken on that measure.

Pike River Coal (NZX: PRC ) was the biggest decliner on the NZX 50 today, falling 2% to 97 cents.

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