MARKET CLOSE: NZ shares fall as UK election creates Brexit uncertainty; Xero, Comvita, Auckland Airport down

Friday 9th June 2017

New Zealand shares fell with turnover low as investors went into a holding pattern following the UK general election, with Comvita, Xero and Auckland International Airport declining.

The S&P/NZX50 Index dropped 24.52 points, or 0.3 percent, to 7,436.1. Within the index, 28 stocks fell, 12 rose and 10 were unchanged. Turnover was $101.4 million.

The UK vote has delivered a hung parliament with Theresa May's Conservatives losing significant ground to Labour, led by Jeremy Corbyn, with no party able to reach the required votes for a majority. May called the snap election to give herself a greater mandate in negotiating Brexit, but today's result has been described as a clear indication of opposition from those who had voted to remain in the European Union. As the incumbents, the Conservatives have the first right to form a government, which they may do with the support of the Northern Irish Democratic Unionist Party.

"The key question for markets is what does this mean for Brexit, and it's really very difficult to answer that at this time because there's no one party where Brexit would appear to have a mandate from this election," Matt Goodson, managing director at Salt Funds Management, said. "The currency tells the story – the pound/USD has weakened from $1.2960-odd to about $1.2750, and then you look to companies with exposure to the UK – in New Zealand we've got Xero."

Xero dropped 3.4 percent to $24.88. The stock has gained 47 percent this year, rising when the company announced its millionth subscriber in March and rising further from mid-May when the cloud-based accounting software firm announced it was moving closer to its first ever profit as customer numbers continue to swell and its 2017 full-year net loss narrowed as revenue grew.

"There's no real evidence they're making great traction in the US but they're clearly doing very well in Australia, New Zealand and the UK," Goodson said. "A fair bit of the required valuation to get to these levels does come from success in the US. The bigger context is the NASDAQ is up 15 percent this calendar year, there are obvious forces propelling the price and Xero is executing well at present."

Comvita was the worst performer, down 8.9 percent to $5.20.

"There's more talk around the potential implication of myrtle rust and what it could mean for manuka and other native trees," Goodson said. "They've had a bit of a perfect storm – some difficulties with their sales channels into China, a difficult year for honey climatically and now myrtle rust. It's a triple whammy for a story which was looking exceptionally promising just a very short time ago."

New Zealand Refining dropped 2.8 percent to $2.43, while Trustpower fell 2.1 percent to $5.10.

Auckland International Airport declined 1.4 percent to $7.10. First NZ Capital cut its 12-month target price for the stock to $5.10 from $5.20 on concern the company's major capital project to cope with growing demand will limit returns from the transport hub's regulated asset base. First NZ kept the ‘underperform’ rating as the stock trades at a “significant premium” to its assessment of fundamental value, it said in a report.

Fletcher Building was the best performer, up 1.5 percent to $7.66, while Z Energy rose 1.3 percent to $7.69 and A2 Milk Co gained 1.2 percent to $3.39.

(BusinessDesk)

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