MARKET CLOSE: NZ shares dip; banks suffer as ANZ expands bad debt provisions

Thursday 24th March 2016

New Zealand shares fell, led by Australia & New Zealand Banking Group and Westpac Banking Corp after ANZ announced it was increasing its bad debt provisions.

The S&P/NZX 50 Index shed 6.3 points, or 0.1 percent, to 6,662.54. Within the index, 27 stocks fell, 15 rose and eight were unchanged. Turnover was $138.3 million.

ANZ was the worst performer, dropping 7 percent to $26.74. The dual-listed Australian bank said it would increase its provisions for bad debt by at least A$100 million, on top of the A$800 million it anticipated for the first half of 2016, which it projected in February within its annual results for 2015. ANZ also fell on Australia's S&P/ASX 200, down 5.8 percent to A$23.87 in late trading.

"It was pretty much taken by surprise by much of the market," said Rickey Ward, New Zealand equity manager at JBWere. "The market was assuming they would have bad debt, but what's been disappointing is they've increased those provisions so soon after their result announcement. That's why, while the provisions were only increased by A$100 million, the stock's been sold off. Normally it wouldn't get penalised that much on such a modest increase, but it's the timing of it that's made people say what else is behind this that you haven't disclosed, and what are the chances of further provision increases being required given the issues surrounding commodity prices."

"They're also talking about segregating or selling off their Asian assets - that tends to present a bit of weakness because people get confused about how to value the segregated assets," Ward said. "A number of things reared on a day when the market's not feeling very happy - it provided plenty of ammunition to sell."

Westpac fell 5.6 percent to $34.50. AMP dropped 1.8 percent to $6.43.

"They get caught up in the whole thing," Ward said. "All the banks get caught up because these provisions are syndicated, so people are saying some of you other guys are going to have to make a comment as well. The whole sector gets penalised by association."

Auckland International Airport declined 2.5 percent to $6.355, Steel & Tube lost 2.2 percent to $2.20, and Fletcher Building dropped 1.7 percent to $7.68.

SkyCity Entertainment Group gained the most, up 4.3 percent to $5.05. The casino operator posted a 30 percent gain in first-half profit to $71 million in February, citing improvements across all its properties and lower funding costs.

SkyCity's New Zealand casinos are benefiting from record migration and tourism, while lower interest rates underpin consumer spending. In Australia, where local conditions are softer following the end of the country's lucrative mining boom and car manufacturing, it's looking to lure more high roller gamblers from Asia to bolster activity at its Adelaide and Darwin casinos.

"There could be an element of defensive buying, they certainly have tailwinds behind them," Ward said. "Tourism numbers are good, and for the first time in some time, they really appear to have a positive story."

Fisher & Paykel Healthcare Corp advanced 3 percent to a record $9.68, and Sky Network Television rose 2.5 percent to $4.93.

NZ Refining rose 1.3 percent to $3.09. It will shave between $7-and-$8 million off processing fee revenue due to problems at its hydrocracker unit. Repairs will be done in April, concurrently with a planned shutdown. The shares have dropped 18.7 percent so far this year, though last month the oil refinery produced a net profit of $151 million for the year ended Dec. 31, compared with $10 million in 2014.

"It's always dangerous to look at the share price relative to the announcement because sometimes they don't marry up very well," Ward said. "NZ Refining's come back from $3.80 to $3, so the fact that it's up today when there's a little bit of negative news out - it may well be that people had gathered something wasn't quite right and had been selling it. They had a good result not too long ago and a positive outlook, yet the share price has performed pretty poorly."

Diligent Corp, which will likely be acquired by venture capital firm Insight Venture Partners for US$4.90 a share, gained 0.7 percent to $7.21. near the $7.32 price implied at today's exchange rate. Nuplex Industries, which Allnex Belgium SA is attempting to buy, rose 0.4 percent to $5.13. Allnex has offered $5.55 per share.

"Their share prices are slowly edging towards the takeover or merger prices," Ward said. "As we get further into the whole process and people get more confident they will proceed without any issues, we will see that gap continue to close."

Outside the main index, Rubicon gained 21 percent to 26.5 cents. American seedling company ArborGen, which is part-owned by Rubicon, has settled with nine former employees for an undisclosed sum, avoiding having to pay US$53 million in damages and costs.

(BusinessDesk)

BusinessDesk.co.nz

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