MARKET CLOSE: NZ shares fall; MRP, Genesis decline on 1H

Tuesday 24th February 2015

New Zealand shares fell paced by Genesis Energy and MightyRiverPower as their first-half earnings disappointed investors. Outside the benchmark index, SLI Systems climbed.

The NZX 50 Index fell 31.392 points, or 0.5 percent, to 5722.965. Within the index, 24 stocks fell, 17 rose and nine were unchanged. Turnover was $120 million.

Financial reporting season is underway, with investors looking to earnings growth to justify the markets recent gain. Yield stocks, held for their regular dividend, which rose to records share prices as investors looked for income in a low interest rate environment have come under pressure as their earnings show mixed results.

"A lot of these stocks are now at very, very stretched levels and there is tremendous expectation built in and no room for any disappointment at all," said Matthew Goodson, managing director at Salt Funds Management. "The market is expensive and when you've got a market on a price earnings ratio of 21 times you can't afford to disappoint so I think you're seeing quite rapid reactions in both New Zealand and Australia to any earnings beats or disappointments."

Genesis dropped 2.4 percent to $2.205 after New Zealand’s largest energy retailer said it faced "headwinds" of weaker global oil prices and aggressive competition for customers that would make it a stretch to reach its full-year earnings target. First-half results showed a 15 percent gain in operating earnings to $172.8 million.

"There is some question whether they will make their IPO forecasts, purely due to the oil price pulling back so sharply but operationally everything looked pretty solid," Goodson said.

MightyRiverPower declined 1 percent to $3.34 after the electricity generator and retailer declared a massive drop in earnings for the six months to Dec. 31, falling from $116 million in the comparable prior period to $8 million, largely reflecting one-off writedowns as it exited its international geothermal interests.

"It was a touch softer relative to expectations," said Matthew Goodson, managing director at Salt Funds Management. "It shows MightyRiver does have some exposure to hydrology and this is all known but there has been a tremendous run in the price and perhaps people buying it for a safe yield have forgotten a bit of that."

Spark New Zealand, formerly Telecom Corp, fell 1 percent to $3.10. Fletcher Building, the construction and building supplies firm, dropped 1.2 percent to $8.43.

Summerset Group fell 1.5 percent to $3.39. New Zealand's third-largest listed retirement village operator posted a 10 percent gain in annual earnings to $24.4 million and said it expects benefits from last year's expansion to help lift earnings growth this year.

Xero snapped four days of gains to led the benchmark index lower, falling 9 percent to $18.25. The cloud-based accounting firm gained some 24 percent over the past week, with the climb in the share price saw the stock market operator and regulator issue a 'please explain' notice to the company, asking Xero to confirm it was disclosing all material information which might be behind the gain. The tech firm confirmed it was, without issuing any further explanation to the gain in its shares.

Outside the benchmark index, SLI Systems rose 5.5 percent to $1.15, paring an intraday gain to $1.25 after the e-commerce search engine developer boosted its operating earnings 34 percent and said it had enough cash on hand for current growth plans. The Christchurch-based company reported a 34 percent gain in annualised recurring revenue, its preferred financial measure based on forward subscription revenue, to $28.9 million as at Dec. 31.

"Clearly when a company is delivering on that sort of revenue growth and not being priced like it, and it's certainly not been priced like a really fast growth tech company, this would be why people would be reappraising the weakness in the stock price," said Andrew Bascand, managing director of Harbour Asset Management. "They've certainly delivered on strong annualised recurring revenue."

PGG Wrightson 2 percent to 50 cents, after climbing to an intraday four-year-high of 53 cents. The rural services firm controlled by China's Agria Corp lifted first-half earnings 47 percent to $19.7 million, beating estimates, on improvements in its retail, livestock and seed & grain units.

GeoOp rose 3.6 percent to 58 cents. It has appointed Anna Cicognani as acting chief executive after newly appointed Ben Foote was unable to take the role as head of the small business app developer due to family complications.

On the Australian Stock Exchange, Martin Aircraft shares recently traded at 45 Australian cents up from the offer price of 40 Australian cents and jumped to as high as 64 Australia cents on their debut on the ASX after the company raised A$27 million to fund the commercialisation of its jetpack.

BusinessDesk.co.nz

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