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MARKET CLOSE: NZ shares rise; A2 gains, Restaurant Brands, Tegel fall on earnings

Thursday 8th March 2018

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New Zealand shares rose, led by A2 Milk Co, while Restaurant Brands and Tegel dropped after updating their earnings guidance.

The S&P/NZX 50 Index gained 74.36 points, or 0.9 percent, to 8,358.7. Within the index, 20 stocks rose, 18 fell and 12 were unchanged. Turnover was $140 million.

Peter McIntyre, an investment adviser at Craigs Investment Partners, said the market had done well despite a large number of stocks going ex-dividend today. The local market took off when the Australian market opened at lunchtime, "which has been a trend for the last wee while," with Asian markets firm, he said.

A2 Milk led the index higher, up 4.9 percent to $13.18, while Sanford rose 2 percent to $7.55 and Spark New Zealand gained 1.6 percent to $3.45.

The worst performers on the index companies whose stocks went ex-dividend. NZX dropped 2.8 percent, or 3 cents, to $1.06; it gave up rights to a 3.1 cent final dividend. Port of Tauranga, which shed a 5.7 cent dividend, dropped 2 percent or 10 cents to $4.95. Air New Zealand fell 0.9 percent or 3 cents to $3.30 after giving up an 11 cent dividend.

Restaurant Brands dropped 1.1 percent to $7.12. Revenue rose 49 percent to $740.8 million in the 2018 financial year, as acquisitions in Hawaii and Australia bolstered earnings. In June last year, chief executive Russel Creedy said the company expected to "comfortably" exceed revenue of $700 million in 2018 and it was aiming to reach $1 billion in annual sales.

Today, the company reported it had done that with fourth-quarter earnings, for the 12 weeks ended Feb. 26, at $181.3 million, a 49 percent lift on the same period in 2017. The full earnings are due on April 17.

"It was probably slightly softer than we thought, we were in the vicinity of $764 million, but close," McIntyre said. "You're seeing some timing issues with store refurbishments and new costs which is inherently more difficult to read through, and in the underlying result, KFC Australia was a bit softer than expected but KFC New Zealand was strong. They did not update guidance, they obviously remain comfortable with net profit after tax of around $40 million."

Outside the benchmark index, Warehouse Group rose 0.5 percent to $2.03. It confirmed that its first-half earnings fell 16 percent to $37.7 million, and warned its full-year result may drop by about a quarter as it transitions its iconic red shed discount stores to an 'everyday low prices' model and integrates its businesses.

"Their shares have been remarkably resilient today, maybe some had already been priced in," McIntyre said. "The first half net profit was down, it was ahead of their guidance but they gave guidance quite late. Management remains bullish around saying customers are responding well, but that's yet to show through in figures."

Tegel Group dropped 6 percent to 94 cents. It said full-year profit may drop by as much as a fifth, into a range of $25 million to $27 million, down from $31.7 million last year,  because of slower progress in Australia and one-time costs ranging from compliance rule changes to restructuring and disruptions to its New Plymouth processing plant.

"The market is starting to lose a bit of patience to be honest until they start getting some positive news back into the market some investors will be thinking there are better places to invest," McIntyre said.

Tower jumped 4.5 percent to 81.5 cents. Suncorp Group's Vero Insurance has sold its cornerstone stake in Tower to US private equity firm Bain Capital for $53.9 million, registering a $7.5 million loss in the process. 

The Australian-owned insurer has spent $60.5 million building up and retaining a 19.99 percent shareholding in NZX-listed Tower before mounting a $236 million takeover bid that was rejected by the Commerce Commission over fears it would detract from local competition. Vero bought shares at an average entry price of 91 cents a share including via participation in Tower's deeply discounted rights issue at 42 cents a piece. It was offering $1.40 a share in its failed takeover attempt.


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