MARKET CLOSE: NZ stocks gain as investors hunt for yield

Monday 3rd April 2017

New Zealand shares gained, led by Z Energy and Spark New Zealand as a decline in global bond yields boosts the attraction of local stocks with high dividends. Telecommunications network operator Chorus fell.

The S&P/NZX 50 Index rose 28 points, or 0.4 percent, to 7225.02. Within the index, 16 stocks rose, 27 fell and seven were unchanged. Turnover was $136 million.

Hobson Wealth Partners investment adviser Brad Gordon said the market had performed well considering it is the beginning of a new quarter. According to Gordon, high yielding stocks benefitted from the fact that 10-year Treasuries "have come off quite a bit, which is is quite strong for the yield play". The yield on US 10-year Treasuries was recently near 2.4 percent, down from 2.6 percent in mid-March.

Companies with relatively high dividend yields gained, with Z up 2.3 percent to $7.12 and Contact Energy gaining 2 percent to $5.16.

Fisher & Paykel Healthcare added 1.6 percent to $9.85, likely benefiting after the New Zealand dollar lost ground against the greenback in the latter part of the quarter, said Gordon.

Spark, another company with a relatively high dividend yield, led the benchmark index higher, rising 3.1 percent to $3.61. The telecommunications group is also in a takeover tussle for the much smaller TeamTalk, offering 80 cents a share as it seeks to exert more control over its input costs by owning infrastructure assets. The application may ultimately be for nothing with the status of Spark's takeover currently thwarted by TeamTalk's plan to sell a controlling stake in rural internet service provider Farmside to Vodafone New Zealand. The transaction breaches several conditions of the takeover and would need a waiver by Spark for its own offer to proceed.

Chorus, which counts Spark as its biggest customer, fell 2.8 percent to $4.20, the biggest decline on the benchmark index.

Small cap Teamtalk ended up 10 percent at 97 cents but Gordon said the light liquidity in the stock contributed to the move. Earlier Monday the Commerce Commission outlined where it's looking for any competition issues in Spark New Zealand's hostile bid for telecommunications firm TeamTalk.

Gordon noted companies in the aged-care space were benefiting from quite a bit of publicity from the Oceania Healthcare prospectus launch. Late last week retirement village operator Oceania Healthcare said it planned to raise $200 million in a much-anticipated initial public offering in order to cut its debt and potentially buy new development sites and will list on the NZX and ASX.

Listed retirement village operators Summerset Group and Metlifecare initially fell last week as investors sought to free up some cash for Oceania but the market "may have realised the Oceania IPO is not as large as they were thinking it was, said Gordon." Summerset Group added 0.2 percent to $5.18 while Metlifecare rose 1.1 percent to $6.20 and Ryman Healthcare increased 1.2 percent to $8.51.

A2 Milk continued to gain, adding 1.7 percent to $3.04 as investors remain cheered on what looks to be a softening in China's approach to goods sold through unofficial trade channels.

The biggest loser across the main board on the day was small-cap Orion Health, which dropped 14 percent to $1.66 after the healthcare software developer said full-year sales fell but it still expects to post a narrower loss and be profitable in 2018. It has been in talks with potential investors in the business.

Gordon said investors are sceptical. He noted that while Orion supposedly has these large long-term contracts in place "they are very lumpy and if they can't bridge the revenue gap with small contracts, then it can be pretty dire."

Cavalier Corp added 1.6 percent to 63 cents. Earlier Cavalier Corp said Sarah Hipkiss has resigned from her position as chief financial officer with effect immediately. The Auckland-based carpet maker didn't provide a reason for the resignation in its statement but said a process for the recruitment of a replacement for Hipkiss will get underway shortly.

Property for Industry shed 0.3 percent to $1.61. The company announced it will pay $42 million a proposal for the industrial property investor to internalise the management contract, a deal Deloitte has deemed fair.

Looking ahead, Gordon said investors will be watching the Reserve Bank of Australia for its monetary policy decision Tuesday. The GlobalDairyTrade auction later in the week could also push units in the Fonterra Shareholders Fund around as well as other stock with exposure to the sector such as A2 Milk.

Fonterra fund units rose 1 percent to $6.12. Investors will shed rights to the 20 cents per unit interim dividend tomorrow.

(BusinessDesk)

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