MARKET CLOSE: Shares fall led by Telecom; Fonterra extends gains

New Zealand shares fell for a third day led lower by Telecom Corp after an analyst's report this week downgraded the stock to a 'sell'. Units in the Fonterra Shareholders' Fund rose after Fonterra Cooperative Group yesterday slashed its forecast milk payout and boosted dividends.

The NZX 50 Index fell 7.004 points, or 0.1 percent, to 5158.552. Within the index, 15 stocks fell, 28 rose and seven were unchanged. Turnover was $171.6 million.

Telecom led the benchmark index lower, dropping 2.6 percent to $2.775, and extending its decline from a six-year high on Friday. A UBS analyst report this week downgraded the stock to a 'sell' rating from 'neutral' after this year's 24 percent advance and questions future profit growth ahead of the telecommunication providers shift away from its traditional services to focus on data, mobility and cloud services.

"What we've seen in the Telecom performance as of late is that it outperformed the rest of the market, while most other stocks have had a pull back from their highs earlier in the year," said Paul Harrison, who helps manage more than $700 million of equities for Salt Funds Management. "The negative call from UBS has accelerated the fall a little bit."

Units in Fonterra Shareholder's Fund extended yesterday's gain, advancing 2.1 percent to $6.20. Fonterra cut its forecast 2015 milk price to $6 a kilogram of milk solids from $7/kgMS, citing a decline in global dairy prices in the face of strong worldwide production, a build-up of inventory in China and falling demand in emerging markets. At the same time the company forecast a dividend of 20 cents to 25 cents a share, up from the 10 cents it plans to pay this year. The fund's units give holders access to Fonterra's dividend stream.

"Its profitability is negatively correlated to the price of milk," said Salt Funds' Harrison. "A lower milk price means a lower cost of goods for the shareholders' fund, so it should see better profitability come out."

Metro Performance Glass, New Zealand's largest glass processor, rose 3.5 percent to $1.76 on its NZX debut from its offer price of $1.70 in a $244 million initial public offer as investors looked for easy-to-value businesses with ready dividends in a stock market busy with companies seeking funds for growth. Metroglass is the seventh company to list this year and tips the balance in favour of new stocks which are trading above their offer price.

"It is quite a different dynamic to some of the stuff that has listed," said James Lindsay, who helps manage $400 million in equities for Tyndall Investment Management. "They're easier businesses to value, you don't have to hand-on-heart guess where things are going as much. They're clearer businesses to have a defined range about what you would think fair value would be."

Of this year's IPOs, Scales Corp, the fruit packager and exporter, rose 2.6 percent to match its $1.60 offer price of last week. IkeGPS Group, which sells a range of portable measuring devices, rose 2.1 percent to 97 cents, below its $1.10 price. Serko, the travel booking system company, was unchanged at 92 cents, below its $1.10 offer price.

Gentrack Group, the utilities and airport software provider, was unchanged at $2.59 and is above its $2.40 offer price. Intueri Education Group, the private education provider which debuted in May, was unchanged at $2.87 and is above its $2.35 IPO price. Genesis Energy, the last of the government's power companies to be partially privatised, rose 0.6 percent to $1.84, above its $1.55 asking price.

Upcoming listings next month include Vista Group International, a cinema ticketing and data analytics firm, and ERoad, a logistics and fleet management company.

Trade Me Group fell 2.6 percent to $3.43. The online auction site has added a monthly listing subscription fee option for realtors after some agents baulked at the online auction site's move to pay-per-listing fees. Property is seen as a key growth engine for the website's biggest earner, its classified advertising business, as it faces flat revenues in general auctions business.

Auckland International Airport fell 0.7 percent to $3.805. The nation's busiest gateway is revaluing the land portion of its property, plant and equipment, and expects it to increase between $725 million and $745 million, lifting the value to between $2.637 billion and $2.657 billion, it said in a statement. Less than $5 million of the increase would be recognised in the company's income statement due on Aug. 26.

Fletcher Building, New Zealand's largest listed company, fell 0.1 percent to $9.03. Air New Zealand rose 3.9 percent to $2.

Pacific Edge led the benchmark index higher, up 7.1 percent to 75 cents.

Outside the benchmark index, Methven fell 0.9 percent to $1.10. The tap and shower maker told investors at its annual shareholders' meeting it is counting on its new Chinese manufacturer acquisition, Methven Heshan, to secure its supply and grow the company's profitability as it targets up to 25 percent earnings growth this year.

(BusinessDesk)