Friday, March 29, 2024

A mixed year for shares

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Investors in a2 Milk Company had a much more prosperous 2015 than those who invested in Fonterra Shareholders Fund units or Synlait shares.
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When the New Zealand share market opened on January 5 last year a2 shares were being traded at 56c each. The price was $1.92 when the market opened on January 5 this year.

The 243% growth in the stock’s value during the year far exceeded the 12% growth in the NZX All Index and NZX50.

A NZ Herald review of winners and losers on the stock market during the year was headlined “A2 Milk’s stock cream of the crop in 2015”.

Buoyed by profit upgrades and bullish investor appetite for infant formula firms, the review said, a2 Milk had soared to become the NZX 50’s best-performing stock by a wide margin.

The stock’s phenomenal growth was far ahead of the second-best performer on the index, NZ Refining, which gained 69.7%.

But 2015 started inauspiciously for a2 Milk. By February 9 its shares had closed as low as 46c. Much of the stock’s subsequent phenomenal growth happened between early November, when the stock was being traded at 77c, and the end of the year.

The surge lifted the price to $1.97 on Christmas Eve and it peaked at $2.27 on December 29. Geoff Babidge, a2 Milk’s managing director, said the infant formula phenomenon and the need to build capacity was not the only explanation for the big lift in the share price.

The company had experienced continued growth in the Australian fresh milk business and announced several initiatives. These included new launches in ice cream and milk powder categories in Australia, the launch of fresh milk into the Californian market, expanding e-commerce distribution in China, expanding fresh milk distribution in the United Kingdom and growing consumer engagement with the a2 Milk and a2 Platinum brands across all markets.

The company upgraded its profit guidance in November and again in December.

Investments in Fonterra Shareholders Fund units, in contrast, performed well below the NZX50. The units gained just 1.8% in the year to January 5.

They could be bought for $6.01 on January 5 last year, troughed at $4.62 late in July, and were trading at $6.12 on January 5 this year.

Fonterra advised the NZX in November, the co-operative’s most recent advice on its expectations, that forecast earnings per share had been increased for the 2015-16 financial year to 45-55c.

Synlait shares were trading at $3.18 on January 5 last year and within a few weeks had climbed to $3.40. But that was their 2015 peak. They troughed at $2.04 in mid-August. The price was $3.16 on January 5 this year, 0.6% lower than a year earlier. But Synlait is a2 Milk’s main supplier in NZ and benefited from investor interest in a2 Milk shares in the last two months of the year. Its shares surged by 32% between early November and the end of the year.

Synlait recently completed its $250 million growth initiatives programme and is concentrating this financial year on driving growth in value-added products, primarily nutritional and infant formula volumes.

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