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

New Zealand shares rose to a fresh record yesterday 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%, 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% 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," Mr 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% to $2.52.

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

Fonterra Shareholders Fund gained 1.8% 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.

Mr 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," Mr Ward said. "All it does is confirm that farmers are the shareholders – 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% to $17.39, having advanced 0.9% on Friday following its annual meeting. Mr Ward said the notes he had read had continued the positive thematic for Mainfreight.

Steel & Tube was the worst performer, down 1.4% to $2.07. Fletcher Building dropped 1.3% to $9.56 and Stride Property fell 1% 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% on the ASX to $A1.0375 cents at 5:30 New Zealand time yesterday. Fairfax Media, which is currently in talks to merge its New Zealand business with NZME, has written down the value of its New Zealand assets by $A95.3 million.

Re-stated historical results by segment show its New Zealand division saw revenues fall to $A166 million from $A179.5 million in the first half of 2016, a decline of 7.6%. Earnings before interest, tax, depreciation and amortisation fell 11.7% to $A27.6 million from $A31.3 million. Only Fairfax's radio and real estate division saw increased revenues and sales.

(BusinessDesk)