Tuesday, 15 Jun 2021

Market close: A2 Milk drags sharemarket lower

A2 Milk’s roller coaster ride saw the sharemarket close weaker as investors digested a fourth significant earnings downgrade from the alternative milk company.

By the close a2 Milk shares were down by 97c or 13 per cent at $6.62 but were off their low for the day of $6.05 after downgrading its earnings forecast forthe fourth time, based on problems with the infant formula trade into China.

A2 Milk’s downgrade brought it into line with broker forecasts.

The S&P NZX50 index felt the impact, falling half a per cent to 12,659 points with 50 million shares traded on the main board worth $166 million.

There were an equal number of gainers and decliners among the 186 stocks listed.
In a market update A2 Milk said trading dynamics in the China infant nutrition market have been and continue to be challenging for the company and many international competitors.

The a2 Milk board tasked management to undertake a comprehensive review of inventory in the trade and this work has indicated that the level of channel inventory is higher than had been anticipated.

Under its revised guidance the company now expects annual sales of $1.2 billion-to-$1.25b for the 2021 financial year and has halved its forecast profit margins to between 11 per cent and 12 per cent.

Oyvinn Rimer, senior research analyst at Harbour Asset Management, said a downgrade had been expected for some time and did not reflect the underlying strength of the business. New chief executive David Bortolussi had made a2 Milk’s position more credible with the market, he added.

“He has acknowledged that there are some pretty significant macro variables going on in the infant formula industry.

“That, in the past, has not been accepted by the company,” he said.

“There has been a change in the language and he is acknowledging that this is a problem and has presented some solutions on how to deal with them,” he said. “What they have presented sounds sensible,” Rimer said.

A2’s woes rubbed off on sister company Synlait Milk, which dropped 5.9 per cent to $3.21, while the Fonterra Shareholder Fund units fell 4.7 per cent to $4.10.

Elsewhere on the market, telecommunications company Spark dipped 4c, or 0.87 per cent, to $4.54.

Rival 2degrees, which is gearing up for a possible IPO, reported a fifth-straight year of operating profit for the 2020 financial year, with full-year underlying earnings climbing 6.5 per cent to $180m.

Parent company Trilogy is expected to update on IPO plans for 2degrees before the end of this week.

Shares in investment company Infratil, which owns half of Vodafone NZ, gained 6.5c, or 0.88 per cent, to $7.45.

Chorus fell 13c to $6.52.

Among the energy stocks, Meridian Energy slipped 1c to $5.32, Contact Energy fell 8c to $7.65, Mercury was down 6c at $6.82 and Genesis slipped 2c to $3.53. Trustpower gained 3c to $8.40.

Harmoney was the second-hardest-hit stock on the local bourse today, its shares slumping 12.2 per cent, or 25c, to $1.80. The peer-to-peer lender dual listed on the ASX and NZX last November following an Initial Public Offer (IPO) priced at A$3.50 ($3.68).

SkyCity shares were unchanged at $3.48. The casino company released an indicative term sheet on its planned $125m bond issue, signalling an interest rate at no less than 3 per cent per annum.

Heartland Group shares rose 3c to $1.88 after the company raised its earnings guidance for the June year to between $85m and $86m.

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