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MARKET CLOSE: NZ stocks mixed; A2 Milk gains on China licence, Diligent drops

New Zealand shares were mixed, with the NZX 50 Index edging higher while more stocks fell. A2 Milk Co rose after securing a licence to export infant formula to China, while other so-called growth companies Pacific Edge and Diligent Board Member Services fell.

The NZX 50 rose 6.967 points, or 0.1 percent, to 5133.866. Within the index, 16 stocks rose, 22 fell and 12 were unchanged. Turnover was $85.5 million.

A2 Milk jumped 6.6 percent from a 15-month low to 65 cents after announcing it got Chinese regulatory approval to export its a2 Platinum infant formula, three months after that country tightened rules to ban unregistered imports of infant formula. Synlait Milk, which manufactures product for A2 and is still awaiting Chinese registration, fell 1.5 percent to $3.25. Fonterra Shareholders’ Fund fell 0.3 percent to $5.99.

“It’s very good news – it really does confirm A2 are able to export into that market, which is probably the largest market for baby formula market in the world,” said Grant Williamson, director at Hamilton Hindin Greene.

Pacific Edge was the day’s worst performer falling 2.9 percent to 66 cents. Diligent Board Members Services declined 2.7 percent to $4.04.

“Companies that are in the higher risk category have been coming under a bit of pressure, particularly with the local market easing off somewhat,” Williamson said. “Investors have been looking to de-risk their portfolios and take profits on some of the higher growth companies.”

Some investors may also be distracted by the continuing pipeline of companies seeking to sell shares and list. Oceania Living, the retirement village operator owned by funds associated with Macquarie Group, is mulling a public listing, raising funds in a sector that’s in the midst of a building boom aimed at capitalising on an aging population. Executives at Oceania didn’t immediately return calls.

Listed retirement village rival Summerset Group Holdings fell 0.9 percent to $3.23. Ryman Healthcare declined 0.6 percent to $8.30 and Metlifecare retreated 0.2 percent to $2.035.

Chorus fell 0.3 percent to $1.67. The Commerce Commission said it will investigate a claim that the telecommunications network operator is attempting to sell services outside the current terms of regulation when they should still be captured by the Telecommunications Act.

Fletcher Building, New Zealand’s largest listed company, rose 0.5 percent to $8.94. Telecom Corp, the nation’s largest telecommunications provider, was unchanged at $2.845.

Outside the benchmark index, Moa Group, the unprofitable boutique beer maker, rose 9.5 percent to 46 cents after it said sales volumes rose 95 percent to 264,000 litres in the three months ended June 30 after moving to a more direct distribution structure in New Zealand, its largest market.

NZ dollar slips before US CPI as OCR review looms

The New Zealand dollar fell before the release of US consumer prices for June, amid speculation inflation in the world’s biggest economy may have accelerated enough to bring forward the timing of interest rate hikes.

The kiwi traded at 86.74 US cents at 5pm in Wellington, from 86.89 cents at the start of the day and from 87.12 cents yesterday. The trade-weighted index declined to 80.77 from 81.05 yesterday.

US consumer prices rose at an annual pace of 2.1 percent in June, unchanged from a month earlier, according to a Reuters survey. That would keep the gain at its fastest since October 2012. The US data comes ahead of the Reserve Bank of New Zealand’s review of the official cash rate on Thursday, which is expected to see the OCR lifted a quarter point to 3.5 percent, compared to near zero for the Federal Reserve.

“If US CPI ticks up there could be a significant move up in the US dollar,” said Tim Kelleher, head of institutional FX sales at ASB Bank. The kiwi “is looking a little bit defensive ahead of Thursday.”

Kelleher expects RBNZ governor Graeme Wheeler, in raising the OCR, may also warn that the currency is over-valued given weaker prices for key New Zealand commodities such as dairy and logs.

The kiwi dollar traded above 88 US cents last week before Federal Reserve chair Janet Yellen gave hints the US economy may be travelling better than thought, global dairy prices fell and New Zealand second-quarter inflation printed weaker than expected.

The New Zealand dollar traded at 92.37 Australian cents, down from 92.72 cents yesterday, and fell to 64.15 euro cents from 64.32 cents. It fell to 50.78 British pence from 50.95 pence and traded at 88.04 yen from 88.18 yen.

Regulator’s draft view on monopoly networks would be $33M a year win for consumers

Electricity and gas consumers will be about $33 million a year better off if a draft decision by the Commerce Commission to reduce the returns allowable to monopoly electricity and gas network owners and national grid operator Transpower is upheld, although the impact at the household level will be tiny.

The commission released a draft decision on the long-running battle over the appropriate weighted average cost of capital for electricity and gas distributors, proposing to reset allowable WACC from the so-called “75th percentile” to the 67th percentile, following a High Court decision last year that questioned whether the 75th percentile estimate level gave electricity and gas distributors the ability to earn excessive profits.

Today’s draft decision is expected to disappoint listed network companies such as Vector, Powerco and Horizon, but was welcomed immediately by the executive director of the Major Electricity Users Group, Ralph Matthes.

“At that the 67th percentile, that’s just over $30 million a year, which is $150 million over five years that we’ve avoided,” he told BusinessDesk after a presentation by the commission’s deputy chair, Sue Begg, on the draft decision. ”That’s a pretty good win.”

But Vector said the decision “constrains” the Auckland-based electricity and gas network operator to invest in maintaining and upgrading its assets.

“Current technology advances greatly increase risk and uncertainty in network investments, which should be increasing the allowable return on assets or WACC percentile, not reducing it,” the company said in a statement.

However, investors appeared to have anticipated the reduction. The Vector share price rose slightly, by 0.4 percent to $2.56, when trading opened on the New Zealand stock exchange this morning.

The commission’s price settings are binding for five years at a time, with new “price-quality paths” to be locked in at the end of this year.

Submissions on the latest draft decision are sought by Aug. 29 for a final decision by Oct. 31.

The draft excludes considering the WACC to apply to airports and does not affect network charges from Christchurch electricity network owner, Orion, which has its own regulated pricing to reflect the damage done and repairs required by the Canterbury earthquakes to the city’s electricity infrastructure.

Vector said the draft decision “reduces the investment returns from the network and, when added to other approaches by the commission, places further pressure on our ability to invest in network sustainability and growth.”

“The correct balance between lower prices for consumers and a suitable return on investment in the network is critical to maintaining the long-term, security of supply that is essential for Auckland’s growth and success.”

However, the commission was responding to the outcome of a High Court merits review, in which Justice Denis Clifford questioned the commission’s use of the 75th percentile for regulated price-setting and tentatively proposed the 50th percentile as more appropriate.

The commission’s decision effectively plumps for the upper end of the range between the 50th and 75th percentiles, having concluded on examining further evidence that returns for network companies were unduly high if set at the 75th percentile.

The proposed amendment will reduce electricity distributors’ WACC – a proxy for the rate of return the companies are allowed to earn on their asset base - from 6.82 percent to 6.57 percent.

It estimates that, if implemented, the reduced percentile will reduce revenue for local monopoly electricity networks’ by around $16.7 million annually, for Transpower by around $11.6 million and for gas businesses by about $4.5 million.

Averaged across all consumers, the reduction is minor, at around $10 a year, and would be considerably less for householders, Begg said.

Moa boosts first quarter sales, expects higher margins to drive profits

Moa Group, the unprofitable boutique beer maker, increased first quarter sales volumes 95 percent after moving to a more direct distribution structure in New Zealand, its largest market.

Beers sales volumes rose to 264,000 litres in the three months ended June 30, from 135,000 litres in the year earlier period, the Auckland-based company said in a statement. Moa didn’t detail its first quarter sales value or profitability.

The brewer, which went public in 2012, missed its earnings targets last year and called on the financial support of its major shareholders following lower-than-expected sales that it blamed on problems with its previous distributor. Moa said it is has doubled its market share in supermarkets to 7.2 percent since changing its sales and distribution structure in October, and is now the fourth-biggest craft beer behind rival brands Monteiths, Macs and Boundary Road, which are owned by DB Breweries, Lion and Independent Liquor respectively.

The company said it expects to boost its gross margin in the current financial year, without providing a target. Last financial year the gross margin rose to 19 percent in the second half from 14 percent in the first half, it said.

“We are confident that by year end the margin the business delivers will be substantially greater,” the company said. “This will considerably improve the timeframe to achieve profitability.”

Moa expects to update shareholders on its capital management plans at its annual meeting on Thursday.

At the end of its financial year on March 31, the company had $4.1 million of cash reserves, down from $11.5 million a year earlier and said it was looking at a range of financing alternatives to ensure it had adequate capital resources to support its growth plans.

Pioneer Capital, which owns 24 percent of the company, and The Business Bakery, on 23 percent, provided Moa with a letter of commitment to provide financial support enabling the group to continue to operate for at least a year, according to its annual accounts.

Shares in Moa last traded at 42 cents, and have shed 66 percent the past year, the second-worst performer on the NZX All Index of 115 stocks.

NZ dollar slips as investors weigh competing tensions ahead of RBNZ decision

The New Zealand dollar slipped as investors weigh the negative signs of a slowing economy against the lure of rising interest rates.

The kiwi edged lower to 86.89 US cents at 8am in Wellington, from 87.12 cents at 5pm yesterday. The trade-weighted index declined to 80.91 from 81.05 yesterday.

The New Zealand dollar fell last week following more upbeat testimony from Federal Reserve chair Janet Yellen which boosted the greenback, and as a drop in dairy prices and slower-than-expected inflation dented demand for the local currency. Still, the Reserve Bank is expected on Thursday to hike interest rates for a fourth time this year, increasing the lure of the kiwi in a global environment of low interest rates.

“It’s hovering, it’s not inclined to go anywhere,” said Peter Cavanaugh, client adviser at Bancorp Treasury Services. “Everybody is in agreement that sometime in the future the kiwi is going to be lower but nobody is prepared to take that first step and say when, and equally, no one is prepared to make that first step and push it down.

“We have seen the New Zealand dollar run into tremendous support at these levels,” Cavanaugh said. “At the moment, the higher New Zealand dollar shows how much cash is king. It’s global cash, and cash looking for yield and looking for return.”

Reserve Bank deputy governor Grant Spencer is scheduled to speak about prudential regulation at 5pm.

In Australia, Reserve Bank of Australia assistant governor financial markets Guy Debelle is speaking at an investors forum in Sydney and governor Glenn Stevens is speaking at the Anika Foundation luncheon in Sydney.

The New Zealand dollar edged lower to 92.67 Australian cents from 92.72 cents yesterday, weakened to 64.27 euro cents from 64.32 cents, declined to 50.88 British pence from 50.95 pence and slipped to 88.09 yen from 88.18 yen.

NZ Post to sell Australian Couriers Please unit

New Zealand Post, the state-owned mail delivery service, is wants to sell its Australian Couriers Please unit in its latest move to rejig its ailing business.

The Wellington-based SOE has hired 333 Capital for the sale of the Australian courier business, which operates metropolitan delivery across the Tasman. Couriers Please has about 570 couriers and more than 130 staff, NZ Post said in a statement.

NZ Post took full ownership of the courier business in 2012, and valued the unit’s goodwill at $38.2 million as at June 30, 2013, down from $65.1 million a year earlier, according to its latest annual report.

In April, the state-owned mail service exited its unprofitable online director business, Localist, as it seeks to return the postal business back to profitability, and drive earnings growth by expanding its Kiwibank subsidiary.

The SOE has $200 million of bonds listed on the NZX debt market. The notes, which pay annual interest of 7.5 percent, last traded at a yield of 5.5 percent, according to NZX data.

Motor Trade Finances rebuffs Heartland approach, mulls meeting

Motor Trade Finances, the Dunedin-based auto-finance firm, rejected a takeover offer from Heartland New Zealand earlier this year, and is warning its shareholders to be wary of any communication from the bank.

The finance company, which has a loan book of some $438 million, has been in talks with Heartland for a considerable period over a potential takeover bid, with an indicative offer made in May, which the board declined, MTF said in a statement. One of the reasons for turning down the bid was Heartland’s request for information relating to a Commerce Commission prosecution currently under appeal, for which the bank wasn’t prepared to enter into confidentiality agreements.

MTF says Heartland has now started engaging with some of its shareholders, and is warning its investors to treat any communications from the bank with caution “given that it is a competitor and potential acquirer of MTF.”

Last week the finance company’s board received a letter from shareholders with some 8.1 percent of the firm’s voting rights seeking a special meeting to publicise information relating to the prosecution, which MTF says is effectively the same information Heartland sought.

MTF plans to meet with the shareholders to discuss what it says are some errors of fact, and will issue a notice of meeting as soon as practicable, it said.

The firm said it is happy to work with Heartland to find a proposal it considers has merit for shareholders.

MTF has $40 million of perpetual preference shares listed on NZX’s debt market, which last traded at 68 cents in the dollar.

Earlier this year Heartland spent $87 million in cash and shares for the Seniors Money International home equity release firm.

Its shares fell 1 percent to 95 cents today, and have gained 13 percent this year.

NZ dollar steady as investors await Reserve Bank interest rate decision on Thursday

The New Zealand dollar is in for a quiet start to the week as traders look ahead to the looming Reserve Bank decision on interest rates on Thursday where a hike is expected.

The kiwi traded at 86.85 US cents at 8am in Wellington, from 86.97 cents at the New York close and 86.77 cents at 5pm in Wellington on Friday. The trade-weighted index was little changed at 80.86 from 80.84 on Friday.

Reserve Bank governor Graeme Wheeler is expected to hike the official cash rate for the fourth time this year, taking the benchmark to 3.5 percent. The higher interest rates available in New Zealand, along with its stable government and strong credit rating, has lured overseas investors and pushed up the local currency 6 percent so far this year. Still, weaker commodity prices and benign inflation may prompt the central bank to pause until December after this month’s hike, economists say.

“Domestically, this week will be all about Thursday’s RBNZ meeting,” Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. “The market currently prices around an 85 percent chance of a 25 basis point hike at the meeting.”

BNZ’s Martin said the currency has support at 86.50 US cents in a quiet start to the week.

Today, net migration data for June will be released at 10:45am. The Reserve Bank has been tracking migration data closely in anticipation a recent surge in net migration should taper off soon, Martin said. In May, the country added a net 3,980 migrants

At 3pm, credit card spending and balance data for June will be published by the Reserve Bank

The New Zealand dollar slipped to 92.45 Australian cents from 92.67 cents on Friday ahead of a speech by Reserve Bank of Australia governor Glenn Stevens to the Anika Foundation in Sydney tomorrow, which is open to media. Australia publishes inflation data for June on Wednesday.

The kiwi was little changed at 64.17 euro cents from 64.15 cents on Friday, and gained to 50.81 British pence from 50.72 pence.

The local currency advanced to 88.01 yen from 87.92 yen on Friday. Japanese banks are closed today in observance of Marine Day.

MARKET CLOSE: NZ stocks drop on plane crash, Gaza invasion; Xero, A2, Pacific Edge slide

New Zealand stocks fell as in a global sell-off as news of a passenger jet plane shot down over Ukraine and Israel’s invasion into Palestine’s Gaza strip spooked investors, driving demand for so-called ‘safe haven’ assets such as gold and bonds. Xero led the market lower, paced by fellow growth stocks.

The NZX 50 Index fell 3.46 points, or 0.1 percent, to 5108.926. Within the index, 24 stocks fell, 20 rose and six were unchanged. Turnover was $111.7 million.

Stocks across Asia followed Wall Street lower after Malaysian Airlines flight MH17 was shot down by suspected pro-Russia Ukrainian militants and Israel launched a ground invasion of Gaza after 10 days of escalating violence.

Local growth stocks led the NZX lower, led by Xero, the cloud-based accounting software, which dropped 4.1 percent to $23.50. Pacific Edge, the Dunedin-based biotech company, declined 4 percent to 72 cents. A2 Milk Co, the milk marketer, fell 3 percent to 65 cents. Diligent Board Members Services, the governance app developer, slid 0.2 percent to $4.10.

Meantime, more defensive companies benefited from the declining risk appetite. Telecom Corp advanced 0.9 percent to $2.80. Goodman Property Trust climbed 0.5 percent to $1.075. Vector, the Auckland lines company, rose 2 percent to $2.56. Meridian Energy increased 0.4 percent to $1.24.

“Markets don’t like uncertainty and both of those incidents bring uncertainty, so we saw a sell off across Europe, the UK and the United States overnight and a bit of a flight to safety, so people sold down the higher risk assets, like shares,” said Mark Lister, head of private wealth at Craigs Investment Partners. “Because (growth-orientated stocks) are not in profit, as soon as you get a bit of caution creep in the first things people look to sell are the higher risk ones, and they flock to the ones they know and under stand and trust, the boring stocks - the property trusts, the ultility companies, the infrastructure companies.”

OceanaGold was the best performer on the benchmark index, up 9.4 percent to $3.73 after the gold spot price jumped on new of the MH17 crash.

Units in Fonterra Shareholders’ Fund rose 0.5 percent to $6.01. The High Court agreed with Fonterra Cooperative Group that its dispute with French food group Danone over the botulism false alarm last August should be dealt with in arbitration in Singapore, but won’t grant a permanent stay on legal proceedings. The units in the fund give holders access to the company’s dividend stream.

Chorus fell 1.8 percent to $1.65. The telecommunications network operator tasked with building the bulk of the nation’s ultrafast broadband network has cut a deal with Crown Fibre Holdings to bring forward funding of $178 million though at a high interest rate and the expense of dividends. Last year the Commerce Commission proposed cutting the network operator’s pricing on its copper line services, which Chorus said left a $1 billion hole in the funding for the roll out of the government-sponsored UFB. In March, Crown Fibre gave Chorus greater flexibility in building the network provided it meets the agreed deadline, and has aligned funding with completed work.

Fletcher Building fell 0.2 percent to $8.89. Auckland International Airport slipped 0.1 percent to $3.80.

Outside the benchmark index, Postie Plus Group’s administrators announced the ailing retailer had been sold as a going concern  for an undisclosed amount to Roan Ltd, a subsidiary of Pepkor, a South African-based investment group with clothing and footwear retail interests in Australia and Eastern Europe. Postie Plus, which will be renamed Retva, shares have been suspended from trading on the NZX since May 29, and last traded onMay 27 at 7.3 cents, giving the company prior to the notification that it was going into voluntary administration a value of $2.9 million.

Energy Mad plunged 19 percent to a record low of 15 cents. The energy efficient light bulb maker corrected a Radio New Zealand report that said it will turn a profit in the first half of the fiscal year. The company widened its annual loss to $4.8 million in the year ended March 31, from a loss of $1.3 million the previous year.

Turners Auctions fell 0.4 percent to $2.67. The auction house announced it will change its name to Turner Group, effective August 4.

ERoad, whose products allow transport companies to manage and pay road user charges and keep track of their fleet, lodged a prospectus for an initial public offer with the Companies Office today, with a view to listing on Aug. 15. The Auckland-based company will sell between 13 million and 15.7 million shares at an indicative price range of $3 to $3.80 per share, of which $40 million will be new capital. The price range values the company at between $180 million and $228 million.

NZ dollar heads for 1.5% weekly slide as local and global factors erode sentiment

The New Zealand dollar is heading for a 1.5 percent weekly drop against the greenback as a Malaysian passenger jet crash in rebel-held Ukraine and an Israeli ground invasion in Gaza sapped investors’ risk appetite in an environment where the local currency had already fallen out of favour.

The kiwi fell to 86.78 US cents at 5pm in Wellington from 88.10 cents on Friday in New York last week. It traded at 86.75 cents at 8am and 86.93 cents yesterday. The trade-weighted index decreased to 80.84 from 80.96 yesterday, and is heading for a 1.3 percent weekly drop from 81.91 at last week’s close.

A BusinessDesk survey of 10 traders and strategists on Monday predicted the kiwi would trade between 87 US cents and 89 cents this week, testing its post-float high. Four expected the currency to fall this week, three predicted it would gain, and three had a neutral bias.

The local currency started its decline early in the week after US Federal Reserve chair Janet Yellen gave a relatively upbeat assessment of the world’s biggest economy during a question and answer session. A slump in dairy prices and slower-than-expected inflation prompted some traders to question whether the Reserve Bank will continue to hike interest rates as quickly as anticipated, eroding demand for the New Zealand dollar.

The kiwi took another hit when risk-sensitive assets were sold off as investors sought relatively safe places for their funds after Ukraine said the Malaysian plane was shot down by pro-Russian rebels, and as Israel launched a ground offensive in Gaza after failing to agree terms to a peace accord with Hamas.

“From the weaker GDT (GlobalDairyTrade) auction, the slightly below consensus CPI (consumers price index) print and throw in geopolitical risk with the Ukraine events and the Gaza Strip, all that conspires to risk-off sentiment for the market,” said Mark Johnson, senior dealer at OMF. “The kiwi’s been a casualty of that.”

OMF’s Johnson said the currency will probably takes its lead from overseas markets ahead of next Thursday’s Reserve Bank OCR decision, which traders still expect will deliver a quarter-point increase in the official cash rate to 3.5 percent.

The kiwi fell to 64.14 euro cents from 64.25 cents yesterday and dropped to 87.93 yen from 88.20 yen. It traded at 50.73 British pence from 50.70 pence and decreased to 92.68 Australian cents from 92.78 cents.

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