MARKET CLOSE: NZ shares edge up as earnings season looms; A2, Contact fall

Monday 20th July 2015

New Zealand shares edged higher, led by Skellerup Holdings, as investors prepare for next month's earnings season where they will expect companies to deliver higher profits. A2 Milk Co declined after rejecting a potential takeover bid.

The S&P/NZX 50 Index increased 8.16 points, or 0.1 percent, to 5861.92. Within the index, 27 stocks gained, 17 fell and six were unchanged. Turnover was lighter than usual at $90 million.

The local market has been a beneficiary from the improving global sentiment after Greece cut a deal with its European creditors, and as the prospect of lower interest rates increases the attraction of stocks offering bigger returns. Investors are now preparing for the upcoming reporting season, where share prices are implying solid earnings growth.

"The market has been trading on premium multiples for some time," said Rickey Ward, New Zealand equity manager at JBWere in Auckland. "I'd hate to be a company that doesn't deliver, there are high expectations built in."

Rubber goods maker Skellerup led gainers on the day, up 2.4 percent to $1.28, while pharmaceutical and healthcare products maker Ebos Group gained 2.3 percent to $10.45, and stock market operator NZX climbed 1.9 percent to $1.06. Telecommunications retailer Spark New Zealand advanced 1.6 percent to $2.905.

Summerset Group increased 0.8 percent to $3.95 after the retirement village operator and developer said it bought land next to its Warkworth site in Auckland to expand the operation.

A weaker New Zealand dollar continued to support companies reliant on export exports, with a depreciating currency increasing the value of those international receipts. Breathing apparatus manufacturer Fisher & Paykel Healthcare gained 1.3 percent to $7.30.

A2 was the worst performer on the day, falling 2.6 percent to 75 cents after the company said a bid by cornerstone shareholder Freedom Foods Group and US food and beverage firm Dean Foods wasn't compelling enough to get a board recommendation.

"There was confirmation from the company that there was no bid imminent in the near-term," Ward said.

Power company Contact Energy declined 1.9 percent to $5.10 amid growing speculation Australian parent Origin Energy will announce a sale of its 53 percent stake as early as this week.

"The rumour is that we'll find out this week, and it almost appears to be more than a rumour when people start talking about prices," JBWere's Ward said. "Whether the market can absorb $2 billion comes down to price."

The future of the Tiwai Point aluminium smelter is said to be one of the sticking points delaying a decision by Origin. The smelter's owner pushed out a deadline to decide on the operator's future earlier this month and has until Aug. 3. Meridian Energy, the smelter's primary energy provider, fell 0.9 percent to $2.15.

Among the blue-chip stocks, Fletcher Building fell 1.5 percent to $8.15, Auckland International Airport increased 0.3 percent to $5.22, and SkyCity Entertainment Group slipped 0.5 percent to $4.21.

Outside the benchmark index, Evolve Education fell 3.2 percent to 90 cents on unusually high turnover of $4 million.

JBWere's Ward said a number of the childcare operator's Australian peers had reported weaker earnings, and it looked as though that sentiment prompted some Australian investors to sell.

Augusta Capital was unchanged at $1 after the property investor and fund manager bought a Queensland property for A$10.66 million, which it plans to offer to investors via a syndication in September.

BusinessDesk.co.nz

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