Market close: a2 Milk shares fall sharply as rival sounds warning

A2 Milk chief executive David Bortolussi. a2 Milk fell 15c or 2.72 per cent to $5.37.

The New Zealand sharemarket had a handy gain after four successive down days with the country’s biggest company, Fonterra, providing a positive earnings outlook.

The S&P/NZX 50 Index rebounded from a morning low of 11,778.84, to close at 11,836.71, up 24.94 points or 0.21 per cent. The index was down 0.9 per cent for the week and has risen 4 per cent so far this year.

There were 79 gainers and 44 decliners on the main board, with 23.77 million shares worth $102.86 million changing hands.

Fonterra Shareholders’ Fund increased 12c or 3.21 per cent to $3.86 after the dairy co-operative said it expects full-year earnings to be at the top end of the forecast range of 65-80c a share. Also, the final dividend would be at the top end of 40-60 per cent of normalised earnings and paid in October.

Fonterra told the market it has reported strong earnings through the 2023 financial year off the back of favourable ingredients margins.

Shane Solly, portfolio manager of Harbour Asset Management, said the Fonterra manufacturing and milk processing businesses are producing some positives and negatives for farmers – but the ingredients division is doing well.

“The Fonterra team has got the bit between their teeth and getting the momentum going,” he said.

Synlait, unchanged at $1.57, reduced its 2023/24 forecast milk price to $7 per kg milk solids, down from $8kg/MS, because of the decline in dairy commodity prices with whole milk powder falling 12 per cent and skim milk powder 11 per cent since May – the lowest levels in three years.

ANZ Research has revised its own farmgate milk price forecast for the 2023-24 season to $7.15kg/MS, down 60c because of the deteriorating economic conditions in China.

ANZ’s 2022-23 forecast remains unchanged at $8.20kg/MS. Fonterra last week reduced its 2023-24 mid-point price forecast to $7kg/MS.

Solly said markets were heartened by United States inflation continuing to cool and taking the pressure off the central bank having to keep increasing interest rates.

But strangely, long-term government bonds, which asset values are set off, went up while the consumer price index (CPI) went down, he said. “I think the US Treasury is issuing new bonds and raising capital in the market.”

The US 10 Year Treasury Note yield rose 10.6 basis points to 4.11 per cent, and the July CPI increased 0.2 per cent for annual inflation of 3.2 per cent, less than the market expectation of 3.3 per cent. In another positive sign, real average weekly earnings were unchanged.

US Inflation has fallen substantially from 40-year highs, following 11 rate rises since March last year, and the economy has had gross domestic product gains of 2 per cent and 2.4 per cent in the first two quarters of the year.

At home, annual food price inflation is also cooling from more than 30-year highs. Food prices fell 1.1 per cent, after seasonal adjustments, in July - only the third monthly decline since December 2021.

Fruit and vegetable prices fell 4.1 per cent in July compared with June, and overall grocery food was down 0.2 per cent but has risen 11.9 per cent over the past year. Meat, poultry, and fish prices fell 0.3 per cent in July.

Genesis Energy declined 11.5c or 4.32 per cent to $2.545 after being removed from the MSCI Small Cap Index. Tourism Holdings, up 2c to $3.37, and NZ Rural Land Co, unchanged at 87c, have been added to the MSCI Micro Cap Index.

Global infant formula marketer a2 Milk fell 15c or 2.72 per cent to $5.37 on the day a Chinese competitor, Feihe, warned of a 23-36 per cent drop in annual net profit, blaming lower birth rates and intense competition. Feihe was down 13.23 per cent to HK$4.33 (NZ92c) on the Hong Kong Exchange at 5.45pm.

Fisher and Paykel Healthcare gained 14c to $23.47; Auckland International Airport was up 4c to $8.37; Mercury Energy improved 14c or 2.15 per cent to $6.65; Summerset Group added 8c to $9.98; and Ryman Healthcare collected 6c to $6.59.

Scales Corp increased 12c or 3.9 per cent to $3.20 after announcing its joint venture pet food move into the European market.

Ebos Group increased 50c to $36; Restaurant Brands was up 5c to $5.26; Comvita gained 8c or 2.354 per cent to $3.48; Move Logistics added 3c or 3.66 per cent to 85c; and General Capital improved 0.007c or 8.43 per cent to 9c.

Mainfreight shed 35c to $66.88; Skellerup Holdings declined 14c or 3.27 per cent to $4.14; Sky TV decreased 3c to $2.45; and Task Group was down 2c or 3.7c to 52c.

Enprise Group, unchanged at 60c, told the market it has been issued a warning by the Financial Market Authority (FMA) over insufficient evidence supporting the directors’ judgments on accounting for cash recoveries involving Kilimanjaro Consulting and its deferred tax assets – as recorded in the 2022 financial statements.

Enprise said it was “disappointed and remorseful that FMA reached this conclusion,” and finalising the statements were challenging given that Kilimanjaro was disputing MYOB’s attempt to retrospectively reduce margins on sales of MYOB Exo software. Kilimanjaro is taking legal action against MYOB.