MARKET WRAP: NZ shares fall with Comvita and A2 Milk

Harbour Asset Management analyst Shane Solly global equity markets have “come of the boil” lately after a strong recent run.

Harbour Asset Management analyst Shane Solly says the market is "anxious" about Comvita.

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New Zealand shares fell today, led by a poor day of trading for Comvita and A2 Milk.

The S&P NZX 50 index was down 41 points to 8615, on turnover of $105 million. The New Zealand dollar dropped below 69USc after softer than expected retail spending for the first quarter.

Harbour Asset Management analyst Shane Solly says global equity markets have “come off the boil” lately after a strong recent run. That was driven by China-US trade negotiations and weaker global economic activity, he says.

Closer to home the market was hit hard by falling shares in Comvita, A2 Milk and Spark.

Comvita shares tumbled 54c, or 7.98%, to $6.23 after confirming talks with a potential bidder for the company had ended.

In April, chief executive Scott Coulter had hinted at a possible overseas takeover, and was party to a confidentiality agreement with a third party who was doing due diligence. At the same time it announced its after-tax operating earnings for the financial year ending June 30 are likely to fall from $17.1 million to the range of $8-11m.

“The market is a bit anxious as to whether Comvita can keep growing as it has in the past,” Mr Solly says.

Last week A2 Milk shares fell 12.8% despite the infant formula company reporting a 70% sales increase for the nine months ended March.

Today A2 shares fell a further 26c (2.3%) to $11.04 despite the stock's pending inclusion into the MSCI New Zealand index on June 1.

Mr Solly says A2 is relabelling some of its products for the Chinese market, creating a short-term sales slowdown.

Kiwi Property Group shares dropped 2.16% to $1.36 after it announced a fall in profit in its annual results today.

The company says its annual earnings rose 8.2% to $111.3 million for the 2018 financial year, despite a fall in bottom line profit of $1.2m, or 1.19%, to $120m.

Spark shares also dropped 1.69% to $3.48. Mr Solly says the stock is sensitive to US bond yields.

Goodman Property Trust shares gained 1.42% to $1.43, after selling Wynyard Quarter office assets to Blackstone for a “very solid” $635m, Mr Solly says.

Vista recently signed an agreement with Japan’s largest cinema chain, Aeon Entertainment, a deal that saw its shares continue to gain 1.47% to $3.45.

Sky Network Television was steady on $2.35, despite international broadcast TV production company NEP announcing it will take a stab at the New Zealand market.

Pushpay shares regained some of their losses from last week - the stock closed up 2% to $4.07.

Investors will be keeping an eye on further results (including Sanford and Metro Performance Glass) as well as a couple of economic indicators, retail sales and migration figures, all due this week.


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In regards to Comvita’s growth and share price decline-
Comvita Board thought Seadragon (SEA) was a good investment for shareholders funds. If you are a shareholder and that doesn’t give you cause for concern then have a look at the cashflow statements for Comvita for the last 3 years. Lucky Westpac loves them. I reckon the Board should be facing some scrutiny.

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The board or the bored? I often wonder how particular business skills are not easily transferable to another industry. But to be fair, they've had a couple of really bad honey seasons. Footnote: A colleague of mine sold out recently (not to Comvita) for a tidy some. He was sitting on a small fortunes worth of stored manuka. Somone's still making money out of honey.

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This announcement marks 44 years to the day Comvita was incorporated. Was that a deliberate sign to your Chinese investors Comvita?. We need to know who the other party was, given they had months of access to the entire operation. We need to know how the business may be affected competitively by this failed processes.

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Let's not forget they managed to deflect the market eyes off what was a pretty poor result by talk of a party undertaking due diligence.

Operational performance is poor, new product innovation is even worse, and strategic moves like Seadragon are just dogs. I guess the analysts at Craigs will see this as bullish.

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Comvita get a glowing report from Craigs because of invested interests. One could argue they have a conflict of interest. Check out the common shareholding, and you'll see what I mean.

You do have to wonder what the NZ sharemarket is about? Mostly speculation, and insider trading that benefit the few. The Police seem to be absent, and until such time as more of these insiders get brought to justice, I'll stick to other forms of investment.

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Talk to any manuka honey producer out there and they will tell you that they are getting better prices from other manuka honey companies even while manuka honey retail prices have been dropping.

The days of Comvita making super profits are over.

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