MARKET CLOSE: NZX50 gains, led by A2 Milk after earnings upgrade

New Zealand shares rose, led by A2 Milk Co after the milk marketer raised its annual earnings forecast for the second time in as many months on strong demand for its infant formula.

The S&P/NZX 50 Index rose 19.510 points or 0.32 percent to 6,107.840. Within the index 27 stocks gained, 17 fell and 6 were unchanged. Turnover was $199.9 million.

A2 was the most actively traded stock on the benchmark index today, after it raised its forecast for 2016 operating earnings before interest, tax, depreciation and amortisation to between $33 million and $37 million, having already raised guidance last month to $22 million from $12 million, and compared with ebitda of just $4 million last year. The company said its infant formula was selling out even after it increased supplies, showing the appeal of its brand in Australia and China and signalling future growth potential in additional markets.

Its shares touched an intraday record of $1.53, and closed up 29 percent at $1.43. Outside of the benchmark index, Synlait Milk, which manufactures infant formula on A2's behalf, jumped 5.5 percent to a seven-month high of $3.05.

"The demand for formula, particularly in China, is just huge at the moment and obviously the company is benefiting from that significantly with their premium brands," said Grant Williamson, a director at Hamilton Hindin Greene. Investors "see further blue sky ahead, given the demand and that they're not really managing to meet the demand so far so it's still looking extremely good. Given that it wasn't that long ago that they upgraded earnings and they have had to do it so quickly again I think is just showing that the market is just continuing to improve very nicely for them."

Trustpower rose 0.8 percent to $7.46 after it announced plans to spin out its windfarms and renewable development assets into a separate business from its more traditional hydro-generation and retail network.

"To my mind, that does make sense, given the wind and solar will require relatively higher capital input probably from shareholders, therefore shareholders will be able to decide which company they want to be involved in," Williamson said.

The transaction still requires board approval but already has the support of Infratil, which owns 50.6 percent of the electricity generator and retailer. Infratil slipped 0.3 percent to $3.13.

Z Energy, the service station chain, declined 0.8 percent to $6.65. In a statement after the market closed yesterday, the Commerce Commission said it had delayed its decision on whether to approve Z's application to buy Chevron New Zealand's service stations until the end of April, adding about $10 million to the cost of the acquisition. The commission had previously flagged an extension was possible, given the complexity of the merger, while Z has said any delays past the Nov. 30 cut-over date would cost it about $2 million a month.

"Obviously, uncertainty, investors hate it and that will be the reason why that share price was sold off," Williamson said. "Hopefully it's just a short-term thing that is not going to have an overall effect on the performance of Z Energy."

Chorus advanced 1.4 percent to $3.72 as the stock recovered after investors sold it for a profit when the shares soared following the Commerce Commission's decision on Tuesday to allow the company to raise the cost of access to its copper wire network.

Spark New Zealand fell 0.3 percent to $3.145 after the telecommunications retailer announced yesterday it would increase the price of its broadband and landline plans from the beginning of February following the Commerce Commission decision on Chorus.

Of the largest Kiwi companies on the exchange, Auckland International Airport gained 0.2 percent to $5.31, Meridian Energy fell 2.1 percent to $2.30, Fletcher Building declined 0.4 percent to $7, and Fisher & Paykel Healthcare slid 1.1 percent to $8.47.

Hamilton Hindin Greene's Williamson said the sharemarket is heading into a quiet period with lower volumes over the coming two to three weeks as fund managers and institutions head away on holiday over the Christmas and New Year period, when typically only retail investors are active.

(BusinessDesk)