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MARKET CLOSE: NZ shares down as Fonterra Fund, Trade Me drop while Ebos Group hits record

Monday 2nd July 2018

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New Zealand shares fell in light trading, led by Fonterra Shareholders' Fund and Trade Me Group while Ebos Group surged on a new deal which could bring A$1 billion in revenue in its first year.

The S&P/NZX 50 Index dipped 0.66 points, or 0.007 percent, to 8,924.47. Within the index, 24 stocks fell, 19 rose and seven were unchanged. Turnover was $90.7 million.

"Even though Friday night's close in the US wasn't too bad, Asian markets are a bit skittery but we're not following suit, we're flat. We haven't had a lot of volume today," said Peter McIntyre, investment adviser at Craigs Investment Partners

Fonterra led the index lower, down 2.6 percent to $5.30, while Trade Me fell 2.4 percent and Australia and New Zealand Banking Group dropped 2.1 percent to $30.35.

Ebos Group was the best performer, up 7.2 percent to $19.25, though it surged to a record $19.50 during the session. The pharmaceutical and animal health products maker won a bid for a distribution deal with Australia's Chemist Warehouse which could bring in A$1 billion of revenue in the first year. 

The two expect to sign a five-year supply agreement, starting July 2019, which could potentially be extended by three years, after Ebos won the tender to be the exclusive third-party distributor of pharmaceutical products to over 400 Chemist Warehouse and My Chemist stores in Australia. 

"It's pretty massive really, and the company itself is confident they can generate what they deem to be an acceptable return on capital on the deal so all pretty positive," McIntyre said. "We see it very much earnings per share accretive for Ebos, and it further diversifies their business model as well.

"They'll probably need to increase their working capital anywhere between A$120 million and A$180 million, so as far as return on investment 12 percent after-tax potentially. It means they become a dominant player and on the other side it limits their acquisition capacity in the short-to-medium term."

Heartland Bank rose 1.8 percent to $1.73, Kathmandu Holdings gained 1.7 percent to $2.96, and Stride Property advanced 1.6 percent to $1.86. 

Outside the benchmark index, Steel & Tube Holdings rose 2.8 percent to $1.49. It has obtained a waiver from its banks after writedowns and impairments put it in breach of at least one lending covenant.

In May the Lower Hutt-based supplier of steel building products said it expected a loss on an earnings before interest and tax basis of about $38 million in the year ended June 30 as a result of costs and impairments of as much as $54 million. Steel & Tube reviewed its business under the guidance of a refreshed board and new chief executive Mark Malpass, who started in February.


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