Tiwai Point closure decision hammers Meridian, Contact and Genesis shares on fears wholesale power prices could drop
End of the line: Shockwaves reverberated through the NZ sharemarket yesterday following the announcement by NZ Aluminium Smelters, a joint venture between Rio Tinto and Sumitomo Chemical Company, that it would be closing its smelter at Tiwai Point in Southland next year. The NZX50 had its worst day in more than a month falling 2.3 percent to close at 11,441, which was also its low for the day.
Electricity stocks whacked: As the country’s largest power consumer, the impact on electricity generators was particularly severe. Contact Energy bore the brunt of the selling, dropping 14 percent to $5.80. The company said it would defer the development of a second geothermal power station in Tauhara and consider closing its thermal power station in Stratford to offset the loss of the smelter.
Meridian hit hard: After a strong run in recent days, the nation’s largest generator, Meridian fell 10.8 percent to $4.69. It owns and operates the Manapouri Power Station, the country’s largest hydroelectric generator, which was purpose built in 1971 to supply electricity to Tiwai Point and is most directly affected by the decision. Mercury NZ shares fell 3.5 percent to $4.68. The North Island power generator said its renewable generation would be unaffected by transmission constraints that would arise from reduced South Island electricity demand. Genesis Energy, also a predominately North Island generator, saw its shares fall 7.9 percent to $2.90 while Trustpower said it had capacity to store water in the South Island for extended periods until demand in the sector rebalances. Its shares were the least effected by the closure falling 3 percent to $6.80.
Bad news for port: Southland port operator South Port faces a $2 million hole in its annual earnings as a result of the Tiwai Point closure. The smelter makes up a third of the port’s cargo volume and its throughput contributes almost a quarter of the company’s after-tax net profit. It’s shares, which are majority owned by the regional council Environment Southland, fell 6.5 percent to $6.49. South Port chair Rex Chapman said the impact of the closure on the Southland economy would be significant and he hoped the small window between now and next August, when the smelter is scheduled to close, will be used to ensure that the financial impact is mitigated both in the short and longer term.
Profit guidance lowered: Retirement village operator Summerset Group has warned that its first-half underlying profit could be up to 16 percent lower on the previous year due to the impacts of Covid-19, which had halted construction as well as property settlements. It said it now expects underlying profit for the six months to June to be between $40 million and $45 million.
Better than expected: Summerset delivered 139 new retirement units in the first half. CEO Julian Cook said sales and settlements had largely recovered and the company was seeing sales enquiries and sales rates that were marginally stronger than typical for this time of year. Overall, the company said it was “pleased with the result, given the circumstances.” Despite the profit warning, investors also appeared relieved with the guidance. Summerset shares closed up 2.4 percent at $6.92 and have gained 22 percent over the past 12 months.
Done deal: ASX-listed Centuria Capital said it has 65.9 percent support for its takeover of Augusta Capital, declaring its offer unconditional. It offered $1 per share for the property investment company, to buy out the 76.7 percent it didn’t already own; half the per-share amount it is was prepared to pay in January. The new offer values Augusta at $169.5 million compared with Centuria’s earlier offer valuing it at $180 million. The company raised $45 million in May from a placement and rights issue priced at 55 cents per share, which enabled Centuria to gain its existing stake.
In the firing line: An expected price hike later in the year by fibre network provider Chorus has broadband retailers up in arms over its timing. While it had delayed its usual price hike on March 23 as the country went into lockdown, Chorus said from October 1 it will implement ultrafast broadband pricing increases, which are linked to the consumer price index. Annual CPI rose 2.5 percent in the March quarter.
Not happy: Not surprisingly, all the major telcos are united in their opposition to the price hike insisting that it should be delayed and warning it is a bad time for consumers to face higher bills. Vodafone NZ described the move as “tone-deaf” and said it does nothing to help “hard-working New Zealanders, who may need to pay more for their internet when connectivity matters more than ever.” It said the only group to benefit from the price hike would be Chorus shareholders who have enjoyed strong returns over the last year.
Why now? Spark said any Chorus price increases would inevitably flow through to customers, “many of whom will be facing hardship over the next six to 12 months.” 2degrees added its voice in opposition to the move saying any price increase should not be considered until at least the middle of next year when Chorus will be able to consider CPI changes that reflect “what is actually happening in post-Covid New Zealand.”
Shareholders smiling: Chorus shares closed up 1c at $7.69 having gained more than 37 percent in the last 12 months verses the benchmark NZX50 index which is up just 7 percent since July last year.
Business booming, for now: The Warehouse Group has reported strong online demand post-lockdown with year-to-date online sales up 55 percent, representing almost 12 percent of all group sales, versus 8 percent for the full year in 2019. The company described online sales as having undergone a “a step-change” following the surge during lockdown with customers increasingly favouring online shopping options. However, it noted that the fulfilment costs involved in servicing online sales means that the profitability of the channel is currently “less than that achieved through our in-store transactions.”
Future revenues less certain: The country’s largest retailer described the way ahead as “uncertain” and said that it expected a slowdown in consumer spending to occur at the conclusion of the wage subsidy scheme in September. The company continues to withhold any FY20 adjusted net profit guidance. Warehouse Group shares closed up 2c at $2.11.
Dire warning: Underpinning the precarious state of the aviation sector in the US, United Airlines is warning nearly half its 72,000 frontline workforce that they could be laid off by October. The world’s third-largest airline says 36,000 workers — including 15,000 flight attendants, 11,000 customer service and gate agents, 5,550 maintenance employees and 2,250 pilots — will receive layoff notices in the coming days. The announcement paints a grim picture for an air travel recovery only days after United announced it would ramp up its schedule in August. But as the pandemic worsens in some areas of the United States, bookings have once again begun to tumble.
Holding pattern set to end: United has warned in recent months that it would be forced to cut thousands of jobs if travel does not pick up before October. So far, airline workers have been largely insulated from the job losses that have wracked other industries. The federal CARES Act, enacted in March, offered billions of dollars in bailout funds to the industry and barred companies that accepted the money from cutting jobs, pay rates or involuntarily laying off workers. That prohibition lifts on October 1 allowing companies to give employees 60 days’ notice of impending layoffs required under federal law.
More retail pain: High end US retailer Bed Bath & Beyond plans to close around 200 stores, or one fifth of its branch network, over the next two years. The announcement came ahead of the company’s quarterly earnings which are expected to show a sharp contraction in sales due to store closures during the coronavirus lockdown. Signs the retailer had been in trouble before the virus hit were evident in early January when the company gave up on meeting its previous financial targets describing them as “unsatisfactory” and underscoring the imperative for change.