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MARKET CLOSE: NZ shares fall as Steel & Tube punished over quality issues, Z Energy gains

Thursday 2nd June 2016

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New Zealand shares fell as investors punished Steel & Tube Holdings for its recent issues over product quality while Z Energy advanced after the New Zealand Superannuation Fund sold most of its stake.

The S&P/NZX 50 Index dropped 19.27 points, or 0.3 percent, to 7003.13 . Within the index, 21 stocks rose, 21 fell and eight were unchanged. Turnover was $429 million, of which $302.2 million was Z Energy shares.

Z Energy rose 2.2 percent to $8.37 after the Super Fund sold its stake, pocketing $292 million and leaving it with 1.5 percent of the petrol station chain. 

Stuart Williams, head of equities at Nikko Asset Management, said investors had become interested in the company after Z Energy did a global roadshow. 

"The Super Fund stake is the last accessible stake in that name. People who missed out on getting some of that stock have had to make a choice about what they were going to do next," Williams said. "There were people who were left short - and, if you believe the broker, they were many times oversubscribed for what they had - and demand was pretty strong. Probably the last liquidity event has occurred and people have been left with not as much stock as they would like."

The index's dip today was logical given the market's strong run, Williams said, but selling in some stocks could also have been driven by people looking to fund their purchase of Z Energy.

"For lots of people, if they're wanting to buy Z they're having to fund it from somewhere - most people would be largely or fully invested," Williams said. "For example, there's Sky City, which is performing operationally very well and has no particular reason to be down today except for the fact it's a very liquid name and people can raise money to pay for participation in Z there. You can see this across a number of names including Fisher and Paykel Healthcare, which is the same sort of thing, and Fletcher Building."

SkyCity Entertainment Group dipped 1.3 percent to $4.67, Fisher & Paykel Healthcare fell 2.1 percent to $10.52 and Fletcher Building dropped 1.8 percent to $8.67. 

Steel & Tube was the worst performer on the index, down 5.2 percent to $1.84.  

In a statement published to the market last night, Steel & Tube said it was in talks with "multiple agencies" in New Zealand and China over pile casing that was to be used in bridges for the Huntly bypass that weren't up to scratch. The company said it had incorporated the impact in the downgraded earnings guidance last month.

Greg Smith, head of research at Fat Prophets, said sentiment was against the company after a run of problems. "It's fair to say sentiment is at a fairly low ebb. Management came out with an earnings downgrade last month, there are the Huntly casings all over the media, it's one thing after another for them".

He added that the only way it could be turned around was through results: "They need to hit the revised full year earnings, perhaps exceed it a little bit, that could be a catalyst."

Kathmandu Holdings dropped 3.2 percent to $1.51, A2 Milk Co fell 3.2 percent to $1.52, and Australia & New Zealand Banking Corp declined 3.1 percent to $26.35. 

Xero was the best performer on the index, rising 3.6 percent to $18.64. Orion Health Group rose 2.9 percent to $5.31 and New Zealand Refining Co gained 2.4 percent to $2.57.

Restaurant Brands New Zealand rose 0.2 percent to $5.56. The fast-food retailer lifted first-quarter sales 8.5 percent as the acquisition of New South Wales' biggest KFC franchise bolstered revenue in the period. 

Restaurant Brands carried out a major expansion in March by buying QSR Pty, the biggest KFC franchisee in NSW, with 42 stores, for A$82.4 million in cash and scrip. Its shares have soared on the prospects of Australian earnings growth from KFC, its most successful New Zealand brand.

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