Pioneering company a2 Milk's price slumped more than 20 per cent after forecasting a significant decline in revenue and it took the New Zealand sharemarket down with it.
In its third downgrade of the year, a2 Milk is now expecting revenue to fall by $135 million in the six months to December compared with the same time last year, and by about $230m for the 2021 financial year because of the difficulty selling to China through the secondary daigou channel.
The S&P/NZX 50 Index fell 206.77 points or 1.6 per cent to 12,682 after reaching an intraday high of 12,969.35 before a2 Milk made its stunning announcement mid-afternoon.
There were 61 gainers and 83 decliners over the whole market on volume of 98.28m shares worth $427.4m as weightings in the MSCI World Index were rebalanced in a late surge in trading affecting New Zealand's leading stocks.
When a2 Milk resumed trading at 2.44pm its share price was quickly chopped 23 per cent – nearly the equivalent of its earnings reduction – and at $10.49 the stock found buying support. It finished a pulsating day at $11, down $3.12 or 22.1 per cent, on trade worth $63.4m.
The brand marketer which pioneered the understanding and commercialisation of the easy-to-digest a2 Milk products had fallen from a high of $21.50 on August 18, and a week later it went into an inexorable decline. With its price drop, a2 Milk has fallen from the third to fifth largest local cap stock on the market, behind Fisher and Paykel Healthcare, Meridian Energy, Auckland International Airport and Spark.
Shane Solly, portfolio manager with Salt Funds Management, said a2 Milk's earnings downgrade has left a sour taste in investors' mouths. "It's a Christmas present no-one wants.
"The company was clearly expecting a recovery in the daigou and that has not happened through the lack of travel with China. Their mistake was being too optimistic about the daigou demand returning."
Solly said a2 Milk's direct sales to China are strong with 40 per growth in the mother and baby stores. "It is still a premium product and a well-respected brand, and the sour taste will take time to rinse through. This is maybe the reset a2 Milk needed in terms of sales and margins."
Synlait Milk, 20 per cent owned by a2 Milk, will in the meantime supply less to its shareholder and its share price fell 15c or 3 per cent to $4.85.
While a2 Milk and Synlait were going south, medical consumables company Ebos Group headed north following an earnings and valuation upgrade from investment banking firm Jarden. Ebos climbed $1.27 or 4.75 per cent to $28.02, and Jarden valued Ebos' share price at $29.20 based on first half trade and a 6 per cent lift in 2021 full-year earnings.
Topsy-turvy Fisher and Paykel Healthcare gained ground, rising $1.06 or 3.2 per cent to $34.21 in late trading after hitting an intraday low of $32.72. Auckland International Airport, no doubt spooked by the new community Covid cluster in Sydney, was down 30.5c or 3.78 per cent to $7.755.
Air New Zealand lost 6.5c or 3.49 per cent to $1.80 after it was revealed the airline has been 'fined' $40,000 by the NZ Markets Disciplinary Tribunal for breaching NZX rules and failing to release market-sensitive information concerning reducing labour costs.
Freightways quickly recovered from the previous day, rising 21c or 2.17 per cent to $9.90; Mainfreight reached a new high, climbing 56c to $62.66; Serko increased 33c or 5.95 per cent to $5.88; and Ryman Healthcare was up 31c or 2.07 per cent to $15.25.
Z Energy, in dispute with NZ Refining Company, fell 10c or 3.10 per cent to $3.13; wine company Delegat Group lost 20c to $15.55; and Radius Residential Care decreased 11c or 9.09 per cent to $1.10.
Infratil has gained Australian Foreign Investment Review Board approval to buy 56 per cent of radiology specialist Qscan from Quadrant Private Equity for A$330m ($351m), and Infratil's share price rose 10c to $7.15.
Tilt Renewables, which has organised a deal with Newcrest Mining, rose 30c or 6.56 per cent to $5.70. Tilt will supply electricity to Newcrest's Cadia mine in New South Wales for 15 years from the Rye Park Wind Farm.
Automation firm Scott Technology climbed 27c or 13.5 per cent to $2.27 after announcing two big contracts worth a total of $18m. Scott is building a carton handling and palletising system for Alliance Group's Lorneville processing plant, and it is installing a production line for Little Swan's washer cabinets in China.