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MARKET CLOSE: NZ shares mixed, Comvita up while Sky TV hits low, Mercury and Genesis report

Tuesday 22nd August 2017

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New Zealand shares were mixed, with Comvita rallying on positive earnings while Sky Network Television hit an 8-and-a-half year low.

The S&P/NZX50 Index dipped 0.7 points, or 0.009 percent, to 7,867.08. Within the index, 24 stocks rose, 16 fell and 10 were unchanged. Turnover was $167 million. 

Comvita led the index, up 11.2 percent to $6.75 after beating full year guidance and announcing it expects to return to an operating profit in the current financial year. 

The Te Puke-based company, which uses Manuka honey, reported a net profit of $9.8 million in the year to June 30 versus $18.5 million in the audited accounts for the 15 months to June 2016 and guidance of $9 million. The better-than-forecast result was due to a stronger-than-expected second half as the so-called "grey channel" or daigou showed signs of recovery. A Chinese government crackdown has crimped profits for companies like Comvita, with the shares down 24 percent this year.

Tourism Holdings gained 1.8 percent to $4.50 after it exceeded guidance, posting a record 2017 profit and said it aims to boost earnings to $50 million by 2020. Net profit rose 24 percent to $30.2 million in the year ended June 30, with revenue rising to $340.8 million from $278.9 million. That's ahead of the upgraded guidance the company gave in June, when it said profit would be about $29.5 million.

Sky TV was the worst performer, down 3.1 percent to $3.08, the lowest it has traded since December 2008. It posted a 21 percent decline in annual profit to $116 million as content costs increased while revenue and subscriber numbers fell.

The pay-TV operator faces increased rivalry from online streaming video services such as Netflix which has seen its subscriber base come under pressure while its programming costs continue to rise. Its costs to secure programming rights increased 5.6 percent to $349.4 million in the latest year, equating to 39.1 percent of revenue from 35.7 percent of revenue a year earlier.

"From our perspective it was a little better than we thought, but we'd taken a bit more of a pessimistic view on the sub numbers, so while core satellite subs are falling the Neon and Fanpass subs have actually done a little bit better, the net net is ok," said James Lindsay, senior portfolio manager at Nikko Asset Management. "They've beaten the market's view about where costs would be - programming costs have come in about $10 to $15 million lower than people thought." 

"But it hasn't helped the stock, everybody's realising the momentum is negative for sub numbers and it doesn't bode well for the medium term," Lindsay said. "For New Zealand names that are owned in high percentages by Australian institutions, they seem to be a bit less discretionary in their purchases here, and when the stock doesn't achieve expectations they're happy to sell it - we've seen a number of reasonable sell-offs."

The gentailers held up following their earnings announcements, with Mercury New Zealand rising 2.3 percent to $3.60 and Genesis Energy dipping 0.4 percent to $2.45.

Mercury increased North Island hydro generation, helping boost net profit in the year to June 30 by 15 percent to $184 million. However, it is forecasting a 4.4 percent ebitdaf drop to about $500 million guidance for the current financial year.

Genesis delivered steady full-year earnings, reflecting both positive and negative effects from swiftly changing South Island hydro-generation conditions in the last half of the year. Ebitdaf was $335 million in the 12 months to June 30, a 1 percent fall on the previous year but ahead of previously announced earnings guidance. For the year ahead, Genesis is forecasting ebitdaf to rise to between $345 million and $365 million.

Mercury declared a 2 percent increase in fully imputed final dividend and a 5 cents per share special dividend. Genesis will pay an 80 percent imputed final dividend of 8.4 cents per share, a 1.2 percent increase on the previous financial year. 

"They're both high dividend stock so that limits some of the downside - you've had Mercury provide a special, and the yield on Genesis has been pretty reasonable anyway," Lindsay said. "They haven't been sold off to any extent, even though in theory both of them are around about a 3 percent earnings miss on a go-forward earnings basis for 2018. It looks somewhat sustainable that Mercury may be able to do specials for some years ahead, so investors may be pricing that in."


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