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MARKET CLOSE: NZ shares drop as A2 weakens on trading update, Kathmandu at 4.5-year high

Thursday 12th July 2018

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New Zealand shares fell, led lower by A2 Milk Co and Sky Network Television, while Kathmandu Holdings hit a four-and-a-half year high.

The S&P/NZX 50 Index dropped 15.92 points, or 0.2 percent, to 8,985.47. Within the index, 22 stocks fell, 17 rose and 11 were unchanged. Turnover was $89.2 million.

A2 Milk was the worst performer, down 3.5 percent to $11.36. It lifted annual sales 68 percent, just beating the guidance given in May, and said it expects to maintain an earnings margin of about 30 percent in the coming year even with increased spending. 

"The trading update probably had a little bit for everyone, certainly at the top end of the range for expectations for 2018 though that had been slightly downgraded previously," said Matt Goodson, managing director at Salt Funds Management. "The margins that they are guiding to are just a fraction below where the market is expecting, as they add more cost into the business in seeking to grow through mother-and-baby store chains in China which is a lot more cost-intensive than selling through daigou, and global liquid milk market in America.

"The second aspect is the quantum of revenue growth in 2019 that they're guiding to wasn't clear. So the market has just taken a little bit of risk off the table on that - the stock had had a bit of a rally before this, so it's back to where it was on Monday," Goodson said. 

Goodson said the weakness of the Australian and Kiwi dollars against the greenback had seen support for exporters across Australasia. On the flipside, stocks with a large US dollar cost base have weakened - Sky TV was today down 3.3 percent to $2.61 and Air New Zealand dipped 0.2 percent to $3.175.

The best performer on the index was Kathmandu Holdings, up 3.8 percent to $3.02, the highest it has closed since December 2014. The stock has risen 20 percent this year, with much of those gains coming since June 25 when it said it expects to increase profit by up to 37 percent this year on higher sales and better margins. 

The dual-listed banks gained, with Westpac Banking Corp rising 2.2 percent to $32.60 and Australia and New Zealand Banking Group up 2.1 percent to $31.72.

Chorus rose 1.9 percent to $4.37 and Skellerup Holdings advanced 1.6 percent to $1.95.

(BusinessDesk)

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