A2 Milk casts a long shadow over NZX-50 index

A2 Milk has emerged as a key driver of the total share market. Photo / NZME

A2 Milk, New Zealand's biggest listed stock, is already having an influence on the rest of the share market.

With its market capitalisation sitting at well over $10 billion, the company has a sizeable 11.2 per cent weighting on the benchmark NZX 50 index.

Historically, the market has from time to time been dominated by a small handful of stocks.

In days gone by, the market was all about trees and telephones - with Telecom, Fletcher Building, Fletcher Paper, and Carter Holt Harvey making up half the index of the day.

Today, investors will have already witnessed the a2 effect.

Up until February, the share market had been going quite well, racking up an unprecedented 13 months of straight gains.

That month, the NZX-50 dropped by 0.8 per cent, but over the same period, a2 Milk rallied by $3.88 a share or 41 per cent.

Had it not been for a2 Milk, the index would have been down by 4.2 per cent, Salt Funds Management's managing director Matt Goodson estimates.

"The reality is that, under the hood, it was a very weak month for a number of New Zealand's biggest stocks, but offset by a2," Goodson says.

"The interesting thing is that it (a2) is both large and volatile," he said.

"It's largely been on an upward trend, it has to be said, but certainly in New Zealand we are used to stocks having very large index weights," Goodson said.

"Given that it is both large and volatile, a tremendous amount of analysis is focusing on it and on trying to predict what will happen next," he said.

A2 is a huge exporter to China - largely through its success in infant formula through the so-called daigou channels.

History has shown that the infant formula market can change quickly, either from a regulatory perspective, or from a food safety standpoint.

"There are some unquantifiable and unforecastable left-field risks, given the nature of the company," Goodson says.

"But to date, they have executed phenomenally well."

Morgans starts A2 cover

There has been a growing list of Australasian broking firms starting up coverage of dual listed a2. At last count, there were 10.

A2 continues to attract a growing number of analysts and there is a solid body of support, particularly in Australia.

Morgans in Australia this week said it had commenced coverage of the stock.

"We forecast strong growth over coming years as we expect a2 Milk to continue to win market share across its product range in some big markets such as China," the brokerage said.

"We therefore think consensus estimates in the outer years will prove conservative and the upgrade cycle should continue," it said.

"A2 Milk's premium products generate high margins and therefore it deserves a premium rating, in our view."

"The company's free cash flow generation is extremely strong and provides it with both growth and capital management opportunities," Morgans said.

Morgans has a A$14.40 target price in Australia, compared with its last traded price across the ditch of A$12.90.

Vista in the limelight

Some still seem in the dark on Vista's impressive performance. Photo / AP

Vista Group, which provides software solutions across the global film industry including cinema management for large-scale and smaller cinemas, has seen its share price appreciate since its annual result late last month.

The company reported revenue growth of over 20 per cent for the year - its fourth year in a row of 20 per cent-plus growth.

Vista's operating profit gained 42 per cent to $25 million. Slade Robertson, managing director at Devon Funds Management, thinks Vista is undervalued.

"The company has guided to another year of strong revenue growth, and once their China operations have been consolidated into their profit and loss, there will need to be significant upgrades to consensus estimates," Robertson said.

"Vista is currently valued at a discount to its peer group of technology businesses in New Zealand and Australia," he said.

"The future for the business looks exciting with significant market opportunities available to it and it has the potential to continue to grow its operating margins," he says.

Vista Cinema is now installed in over 6,300 sites across 93 different countries.

In a notice to the NZX yesterday, Fisher Funds said it had raised its holding in Vista to 9.2 per cent from 8.2 per cent. The stock closed at XXX up from $2.50 at on February 22.