MARKET CLOSE: NZ shares down, Xero and Steel & Tube drop, Eroad up 10%

New Zealand shares edged down in relatively light trading, led by Xero and as Steel & Tube Holdings dropped on a profit warning. Eroad shares gained 10 percent.

The S&P/NZX50 Index dropped 7.48 points, or 0.098 percent, to 7,622.13. Within the index, 25 stocks fell, 15 rose and 10 were unchanged. Turnover was $109.1 million.

Xero led the index lower, down 2.3 percent to $25.30, ahead of next week's annual meeting and at the opening of a new financial quarter. The stock has gained 48 percent this year on positive earnings results.

"They've had an exceptional performance this year. Some of it was a good result - as good as expected - but also a very favourable backdrop from the Nasdaq and the FANG stocks (tech stocks Facebook, Amazon, Netflix and Google)," Salt Funds Management's managing director Matt Goodson said. "Those have been weak in the last several weeks so Xero's coming off its highs a little bit on that."

Chorus dropped 1.5 percent to $4.56, while Scales Corp declined 1.5 percent to $3.35.

Outside the benchmark index, Steel & Tube dropped 6.5 percent to $2.46. The company issued a profit warning after a challenging second half and increased competition in the market. It had previously said full-year earnings before interest and tax (ebit) in 2017 would be consistent with 2016, but that's now expected to fall short of last year's $36.7 million (which includes the gain from sale of property) by between 10-and-15 percent.

"It's quite interesting in the face of a booming construction sector that we've had either warnings or difficult results from each of Fletcher Building, Steel & Tube, Metro Glass and Methven," Goodson said. "When you get to the peak of the cycle, trying to keep control of margins and keep control of costs is clearly rather difficult."

Fletcher gained 0.1 percent to $8 today, while Metro Performance Glass was unchanged at $1.38 and Methven rose 1.8 percent to $1.13.

A2 Milk fell 1 percent to $3.88. Its struggling Australian competitor, infant milk formula maker Bellamy's, is in a trading halt after news its recently-acquired Victorian canning facility has had its crucial Chinese licence suspended. Bellamy's paid A$28.5 million for the Camperdown facility last month, in an attempt to comply with Chinese regulation, after failing to crack the market in a series of missteps.

"It obviously cuts both ways for A2 - on the positive side, it will create difficulties for a competitor, but on a negative side it illustrates the significant regulatory risk which is largely unforecastable," Goodson said. "It is very hard for investors looking in, and perhaps even for the companies themselves, to know exactly how they're placed in terms of their regulatory compliance or otherwise. To date, A2's execution has been flawless, but it's worth keeping an eye on."

Summerset Group was down 0.6 percent to $4.69. The retirement village operator and developer posted an 18 percent drop in second-quarter sales from a record year-earlier period, although it says its building programme is set to deliver more units later in the year. Year-to-date sales are tracking ahead of 2016 at 323 compared to 306, with new sales largely flat at 179 and resales up 17 percent to 144.

"You have to be careful about reading too much into that (share price)," Goodson said. "It's Australian school holidays this week, New Zealand school holidays next week so quite a few people have disappeared a day or two early. Volumes have been very light in the market today, so you have to be very careful about how much information you read into some of these moves."

Vector fell 1.2 percent to $3.34. The Auckland-based electricity, gas and telecommunications lines company has cut a deal with the Commerce Commission to return $13.9 million to Auckland electricity customers after a change to the way it set two tariffs in 2013 saw it breach its regulated revenue cap in the following two years.

Sanford was the best performer on the top 50, up 2.9 percent to $7.20. Arvida Group gained 2.4 percent to $1.30 and Fisher & Paykel Healthcare Corp rose 2 percent to $11.15.

Eroad gained 10.3 percent to $2.15. The shares have soared 31 percent since Wednesday, hitting a four-month high, as buying continued after the company posted positive quarterly sales earlier this week.

(BusinessDesk)