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MARKET CLOSE: NZX 50 rises to record; Synlait jumps to all-time high after earnings

Wednesday 21st March 2018

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New Zealand's S&P/NZX 50 Index rose to a record led by Synlait Milk, which jumped to an all-time high after posting strong first-half earnings growth. Synlait's partner A2 Milk Co also gained, along with Kathmandu Holdings and the Fonterra Shareholders' Fund.

The NZX 50 gained 121.1 points, or 1.4 percent, to 8,608.29. Within the index, 33 stocks rose, 10 fell and seven were unchanged. Turnover was $155.4 million. 

Synlait Milk led the gainers, rising 14 percent to $9.23. The company posted a record first-half net profit on increases in the manufacture and sales of high-margin products and its relationship with a2 Milk. Profit jumped to $40.7 million in the six months ended Jan. 31, from $10.2 million a year earlier, as revenue rose to $439.3 million from $288.7 million in the prior period.  

"It's gone from hero to zero to hero again," said James Smalley, investment adviser at Hamilton Hindin Greene. "They have more than outperformed, they've surprised the market to the upside with a stellar performance and it's all sweetness and light in the share price now. Their recent run-up has been on the coattails of A2, but they have come out of the shadow with their own performance today." 

A2 Milk itself rose 3.6 percent to $13.99, Mercury New Zealand gained 3 percent to $3.255 and Kathmandu Holdings advanced 2.9 percent to $2.47.

Kathmandu Holdings gained 2.9 percent to $2.47. The outdoor equipment retailer successfully raised $40 million through an institutional share placement of approximately 18.5 million new fully paid ordinary shares, it said in a release to the stock exchange. The company also intends to raise as much as $10 million selling shares to eligible retail shareholders in Australia and New Zealand for the same $2.16 share price as institutional investors.

"Sometimes the stock would be lucky to do 100,000 to 200,000 in volume, today we've had 1.9 million, so it does show you the capital raising has had an impact," Smalley said. "It's one of those scenarios where you can almost guarantee the placement is going to be well oversubscribed and retail investors will get significantly scaled.

"When companies are making acquisitions it can get risky to undergo a long capital raising - you're exposed to market events et cetera - and because of the speed required, placements involve putting up the shares for sale to a few institutions, so smaller shareholders tend to miss out."

Units of the Fonterra Shareholders' Fund, which are entitled to the dividends from the dairy company's shares, rose 1.2 percent to $5.90. Fonterra Cooperative Group wrote down the value of its Beingmate Baby & Child Food investment by $405 million, calling the performance of its Chinese partner "unacceptable". The writedown and a $183 million settlement with Danone led to a first-half loss.

The cooperative also lifted its forecast farmgate milk price to $6.55 per kilogram of milk solids from the $6.40/kgMS it projected in December, reflecting the improvement in global dairy prices since then. The total cash payout is forecast to be in a range of $6.80 to $6.90.

Air New Zealand fell 0.2 percent to $3.375. Regional economic development minister Shane Jones publicly called for the company's chair Tony Carter to resign, criticising Air NZ for withdrawing services to regional airports. Jones cited the fact that the government owns 52 percent of Air NZ and that the company needs to be responsive to its shareholders. Carter yesterday said he had written to Finance Minister Grant Robertson to underline the airline's independence.

NZX was the worst performer, down 0.9 percent to $1.07, while Arvida Group fell 0.8 percent to $1.19 and Goodman Property Trust dropped 0.7 percent to $1.35.

Outside the index, Briscoe Group gained 1.1 percent to $3.69. The company maintained its 19.8 percent holding in Kathmandu by participating in the capital raising, buying 2.57 million shares from the institutional placement for a cost of $5.6 million. It also intends to participate in the share purchase plan.


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