NZX50 slumps as Trump orders Iran blockade; a2 Milk sinks on profit warning

New Zealand’s S&P/NZX 50 index tumbled as US President Donald Trump’s proposed blockade of the Strait of Hormuz sent oil prices higher, and reignited fears of a protracted conflict in the Middle East.

The a2 Milk Co was a drag on the benchmark as it sank the most in 19 months after warning that supply disruptions threatened to knock earnings in the last few months of the financial year.

Meanwhile, Fonterra Cooperative Group promoted senior manager Richard Allen to the top job, taking over as chief executive next month to guide the world’s biggest dairy exporter through its next incarnation, shed of its Mainland consumer business.

And reliable dividend paying companies such as Goodman New Zealand, Property for Industry, Mercury NZ and Meridian Energy shook off the latest forecast for more aggressive rate hikes by the Reserve Bank as property and energy stocks were broadly stronger on the day.

Choppy waters

The NZX50 dropped 161.26 points, or 1.2%, to 13,020.18, with 27 stocks declining, 14 gaining, and nine unchanged. Turnover across the main board was $114.2 million, of which a2 Milk accounted for $15.2 million as the infant formula company tumbled 12% to $9.82 after warning that Chinese sales would be knocked in April and May as Synlait Milk catches up on production and new customs standards were slowing down clearance times. Synlait was unchanged at 42 cents.

“When your PE is in the 30s, you need perfect execution,” said Matt Goodson, managing director at Salt Funds Management, referring to a2 Milk’s price-to-earnings ratio.

The infant formula maker was the biggest drag on the NZX50, which started on the back foot after US-Iran peace talks fell apart over the weekend, leading to President Trump ordering a blockade of the Strait of Hormuz.

Brent crude oil futures jumped 7.2% to US$102.08 a barrel at 5pm in Auckland, while the kiwi dollar dropped to 58.25 US cents from 58.47 cents last week.

Salt’s Goodson said the embargo on Iranian ports might add pressure on the Islamic Republic to resume negotiations, but reignited energy supply issues if it dragged on.

Tourism Holdings sank 8.3% to $2.09, while Air New Zealand dipped 2.3% to 43.5 cents and Auckland International Airport decreased 0.4% to $8.22. Mainfreight fell 2.3% to $58.64.

Channel Infrastructure advanced 2.4% to $3.04 after Ministry of Business, Innovation and Employment figures showed New Zealand’s fuel stocks dipped in the latest update.

Fonterra Shareholders’ Fund units posted the steepest decline on the NZX50 after they resumed trading after being halted for the $2 per unit capital return from the sale of the consumer business. The stock was down 27%, or $2.25, at $6.15, while the farmer-owned cooperative shares were down 28%, or $1.76, at $4.42.

The dairy exporter today said Richard Allen would take over as CEO on May 1, having been promoted from his current role as president of global ingredients. Outgoing chief Miles Hurrell would stay in an advisory role until September to support the transition.

General insurer Tower gained 1.8% to $1.945 after Cyclone Vaianu was less intense than feared when it hit the North Island over the weekend.

Reliable stable

Goodman NZ posted the biggest gain on the NZX50, up 3.8% at $1.92, with rate-sensitive property stocks one of the better performing sectors on the day. PFI rose 1.3% to $2.28, Vital Healthcare Property Trust advanced 0.5% to $1.87 and Stride Property gained 0.4% to $1.16, while Argosy Property, Investore Property, Kiwi Property Group and Precinct Properties NZ were all unchanged.

Similarly, utilities held for their reliable dividends weathered the storm, as Mercury rose 1.1% to $6.55, Chorus gained 1.1% to $9.61, Meridian increased 0.9% to $5.57 and Contact Energy was unchanged at $9.37. Genesis Energy declined 0.5% to $2.20.

ANZ New Zealand economists changed their monetary policy forecasts, predicting the Reserve Bank would start raising the 2.25% official cash rate from July, and pencilling in three hikes this year. New Zealand’s two-year swap rates rose to 3.56% at 5pm from 3.49% last week.

Salt’s Goodson said two- and three-year swap rates were already tightening monetary conditions significantly.

Still, retirement village operators –which are typically tied to the housing market – were generally weaker, as Oceania Healthcare fell 3.5% to 69.5 cents, Ryman Healthcare slipped 2.4% to $2.03 and Summerset Group Holdings declined 2% to $8.75.

KMD Brands was the most heavily traded stock on the day with a volume of 2.9 million shares, as it fell 4.2%, or 0.3 of a cent, to 6.9 cents, homing in on the 6 cents offer price.

Outside the benchmark index, NZME fell 1.4% to $1.07 after Spheria Asset Management said it lifted its stake in the media group to almost 16%.

And Accident Compensation Corp’s investment arm emerged as a substantial shareholder in Michael Hill International, with a 5.8%. The stock was unchanged at 44 cents.

Reporting by Paul McBeth. Image from Curious News.