The Warehouse share price 'likely to fall'

Wednesday, 25 March 2020

The Warehouse Group is likely to face further scrutiny on Wednesday over its announcement to the share market that it would stay open through the lockdown.

Its share price jumped sharply after the notice was issued, from $1.50 to an eventual peak of just over $2.02 before shares were put in a trading halt.

But it was determined by the end of the day that The Warehouse would not count as an essential service while New Zealand is at alert level four.

In a statement, the NZX said what listed companies disclosed to the market was a matter for the company to determine in the first instance.

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There was an obligation to release information to prevent a false market developing in shares that was materially influenced by false or misleading information from the business itself.

'NZX Regulation is not able to comment specifically at this time on the announcement released by The Warehouse regarding its assessment of its status under the recently-announced Government categories of essential services.'

A penalty of up to $500,000 can be imposed on a market participant who is found to break the rules of the NZX.  A higher fine is possible if they are found to have benefited from the breach.

The trading halt remained in place on Wednesday.

In an email to customers on Wednesday afternoon, The Warehouse said it was disappointed with the Government's decision to not consider the company as an essential service.

'We believe all New Zealanders deserve a place to get affordable family essentials, and we're really gutted that we can't be that place right now.

'It's what we've always stood for. But we understand the risk to people's wellbeing, and we won't compromise on that.' 

Jeremy Sullivan, an investment adviser at Hamilton Hindin Greene, said The Warehouse fell into a grey area. 'The directors made a 50/50 call and got it wrong.

'Under continuous disclosure requirements, The Warehouse would have seen it as a material announcement whether they were an essential or non-essential service so they would have felt some pressure, under their listing and compliance rules, that they would have to make an announcement of some sort and they got it wrong. 

'You feel sorry for staff with all the uncertainty and for the people who bought the stock. When it comes out of trading halt, that share price will fall back to where it was or fall significantly.'

Murray Harris, head of distribution and KiwiSaver at Milford Asset Management, said the announcement showed it had been a difficult process for individual businesses to work out where they would fit.

'I think it shows the Government were trying to work it all out behind the scenes after making the headline announcement. You would think they might have had that all planned much earlier by watching what was happening in Europe. It's been a challenge for individual businesses within a sector such as. food supply - supermarkets are okay but fruit and veg stores and butchers cannot remain open. Clearly the Government is wanting to minimise the movement of people to only a few essential locations - and that is the best thing they can do.'

A petition was launched after The Warehouse made its announcement, urging it to close.

In its latest NZX update, the retailer said there was 'considerable uncertainty' around what met the definition of essential businesses and which products and services they were able to provide.

'The Warehouse Group is in discussions with Government on what categories within The Warehouse will be available post escalation to Covid-19 Alert Level Four. The group will make an announcement when there is better definition of this, and will then request the trading halt is lifted. It is expected that this will be by [Wednesday] morning.'