MARKET CLOSE: NZ shares rise on the prospect of lower rates; Contact, Sky TV, MRP advance

Thursday 16th July 2015

New Zealand shares rose, buoyed by the prospect of lower interest rates making returns on equities more attractive. Income-paying stocks, such as Contact Energy and Sky Network Television, advanced.

The S&P/NZX 50 Index gained 18.21 points, or 0.3 percent, to 5824.16. Within the index, 25 stocks rose, 17 fell and eight were unchanged. Turnover was $131 million.

Overnight prices for whole milk powder, the country's key commodity export, dropped more than expected in the GlobalDairyTrade auction, sending the kiwi dollar to a six-year low. On the back of that weakness, traders expect the Reserve Bank will lower the official cash rate next week, and have priced in 56 basis points of cuts over the coming 12 months, according to the Overnight Index Swap curve. Lower interest rates fuels demand for income-paying equities, as investors look for bigger returns on their investments.

Contact, the energy retailer and generator, advanced 1.8 percent to $5.15. Sky TV, the country's dominant pay-TV provider, rose 1.2 percent to $6.16. Spark New Zealand, formerly Telecom Corp, gained 0.5 percent to $2.88. MightyRiverPower, the state-controlled energy provider, rose 0.4 percent to $2.83. Chorus, the network operator, increased 0.5 percent to $2.825.

"The expectations of further interest rate cuts and further currency weakness are overwhelming and offsetting what you're seeing in the dairy prices," said Mark Lister, head of private wealth research at Craigs Investment Partners. "That's why you've got some of the yield stocks performing quite well, such as Sky TV, Contact Energy, Chorus, and MightyRiverPower."

The slump in the kiwi dollar also helped investor sentiment, by boosting the international income derived from companies which export goods or have earnings exposed to the currency, Lister said. Fletcher Building, the construction and building supplies firm with significant Australian interests, climbed 2 percent to $8.28. Fisher & Paykel Healthcare, the breathing apparatus manufacturer and exporter, rose 0.1 percent to $7.18.

"You've got some real pressure on the dairy sector, but if you look at just about any other exporter they're in much, much better shape," Lister said. "We haven't seen any other commodities fall like that, other commodities are actually holding up okay. All of those guys are actually doing pretty well, and with the currency having fallen off a cliff like it has as a result of dairy it's win-win for them."

The decline in dairy prices weighed on the few listed dairy companies on the local bourse. A2 Milk Co, the milk marketing company, was unchanged at 77 cents. Synlait Milk, the South Island milk processor, dropped 1.2 percent to $2.52. Units in Fonterra Shareholders' Fund, which give holders access to Fonterra Cooperative Group's dividend stream, declined 1.5 percent to $4.70.

The drop in dairy prices "were absolutely terrible figures, no matter how you look at it," Lister said. "There won't be many happy dairy farmers out their today, after this morning's auction, but there aren't too many dairy linked stocks on our market" which is why it had a muted impact.

Outside the benchmark index, rural supplies company PGG Wrightson fell 2.1 percent to 46 cents.

Cavalier Corp was the biggest gainer on the S&P NZX All Index, climbing 20 percent to 54 cents, on the back of investor optimism changes in the governance of the carpet maker may be able to turn around its poor performance. Still, the shares remain significantly below a peak of $4 in 2011 and an all-time high of $5.70 in 2003.

Gentrack Group, which develops utilities and airports software, climbed 7.1 percent to $2.25 after it completed one of two negotiations weighing on its forecasts with a UK water utility firm entering into a contract, and affirmed annual guidance provided in May. The board still expects annual earnings before interest, tax, depreciation and amortisation of between $13 million and $15.5 million in the year ending Sept. 30, despite signing the deal with the water utility, which is expected to be implemented in 2017.

BusinessDesk.co.nz

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