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MARKET CLOSE: NZ shares rise to another record, led by NZ Refining and Fonterra

Monday 1st August 2016

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New Zealand shares rose to a fresh record with New Zealand Refining Co and Fonterra Shareholders Fund gaining after the latter maintained its milk payout forecast. 

The S&P/NZX 50 Index gained 8.5 points, or 0.1 percent, to 7,356.63. Within the index, 28 stocks rose, 17 fell and six were unchanged. Turnover was $172.3 million, a strong figure for a Monday. 

Rickey Ward, New Zealand equity manager at JBWere, said the market had seen 6.5 percent growth in July and investors were positive ahead of this month's earnings season.

"There feels a bit more of a positive tone on the market despite having an unbelievable month last month," Ward said. "It's the second highest monthly return this year, around the eighth since 2001 and the fourth-best returning month since the global financial crisis. The expectations are for a pretty healthy single-digit earnings per share growth, we haven't really seen revenue growth come through to any material level yet."

New Zealand Refining Co led the index, up 2.9 percent to $2.52.

Comvita gained 2.4 percent to $11.55 and Skellerup Holdings advanced 2.3 percent to $1.31.

Fonterra Shareholders Fund gained 1.8 percent to $5.79. The cooperative group kept its forecast farmgate milk price unchanged at $4.25 per kilogram of milk solids and said it expects earnings per share of 50c to 60c for the year ending July 2017. The forecast milk price for 2016/17 means the total payout available to farmers will be $4.75 to $4.85, still below the break-even mark for many farmers.

Fonterra also released proposed changes to the Farmgate Milk Price Manual for the 2016/17 season that would expand the basket of reference products it is based on, a change that could add 5 cents/kgMS.

JBWere's Ward said earnings per share was ahead of market expectations, but the flipside was the changes to the milk price manual. 

"That's probably a little bit of a question mark on the announcement today - all that does is raise concerns, or confirm, that Fonterra may be favouring farmers over shareholders, so to speak - otherwise it would've been a stronger upgrade than what it is at the moment," Ward said. "All it does is confirm that farmers are the shareholder - you don't have a company if you don't have farmers, so making sure you retain supply is essential for a company like Fonterra. It's not quite a loss leader, but I do understand what they're trying to do."

Mainfreight gained 0.8 percent to $17.39, having advanced 0.9 percent on Friday following its annual meeting. Ward said the notes he had read had continued the positive thematic for Mainfreight.

Steel & Tube was the worst performer, down 1.4 percent to $2.07. Fletcher Building dropped 1.3 percent to $9.56 and Stride Property fell 1 percent to $2.

Precinct Properties was unchanged at $1.255. The property investor has signed the Crown to a series of long-term leases across four of its buildings in Wellington which it says will generate about $500 million of income over the next 15 years.

Outside the local index, Fairfax Media shares fell 1.2 percent on the ASX to A$1.0375 cents at 5:30 New Zealand time. Fairfax Media, which is currently in talks to merge its New Zealand business with NZME, has written down the value of its NZ assets by A$95.3 million. 

Re-stated historical results by segment show its New Zealand division saw revenues fall to A$166 million from A$179.5 million in the first half of 2016, a decline of 7.6 percent. Earnings before interest, tax, depreciation and amortisation fell 11.7 percent to A$27.6 million from A$31.3 million. Only Fairfax's radio and real estate division saw increased revenues and sales.

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