MARKET WRAP: NZ shares fall as Fonterra, Steel & Tube drop

New Zealand shares fell today after a tough day of trading for Fonterra and revised guidance for Steel & Tube.

The S&P NZX 50 index was down 60 points to 8553, on turnover of $171 million.

Fat Prophets head of research Greg Smith says Fonterra’s profit warning was “significant”. 

Its shares fell 6.69% to $5.35 after announcing an opening forecast farmgate milk price of $7/kg of milk solids for the 2018/19 season.

While that was good news for farmers still recovering after the two years of lower milk prices in 2015 and 2016, the higher milk price puts pressure on Fonterra’s earnings, which are already suffering from its Danone settlement and Beingmate impairment announced in February.

“Milk volumes were down 5% which is the main reason it didn’t get the uplift from those higher prices. Earnings will be 25-30c per share for full-year 18, the market was looking for over 40c so you can understand why the shares were sent down,” Mr Smith says.

Mr Smith says Steel & Tube’s result “propelled Fonterra into insignificance”.

Steel & Tube’s shares fell 16.16% to a 17-year low of $1.66 after the company announced it expects impairments of up to $54m.

Even excluding the write-downs and other non-trading costs, normalised earnings before interest and tax will be about $16m for the year ending June, half the $31.1m ebit result last financial year.

The expected loss means Steel & Tube will breach its ebit-to-interest cover ratio of 2.25 times and the company is now negotiating a waiver with its bankers, HSBC and BNZ.

Mr Smith says the company will have to sell some of its assets and is "clearing the decks" of the management team.

Corporate travel booking software developer Serko’s shares fell 8.67% to $2.74, despite the company reporting its first profit since listing in 2014.

The Auckland-based company made a net profit of $1.8m in the year to March 31, from a loss of $3.5m last year.

Earnings before interest, tax, depreciation and amortisation (ebitda) jumped 188% to $2.2m, from a $2.5m loss last year.

“You would expect investors to react warmly to that, but the shares have been on a good run,” Mr Smith says.

It was a good day for the listed software companies. GeoOP shares gain 5% to 21c after it announced a global distribution agreement for its cloud software.

SLI Systems was also up 6.65% to 33c after it signaled “strong profits” in its trading update.

Sanford was flat on $7.45 after reporting a 43% profit gain for the half year to March.