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a2 Milk, Seven Group and Fairfax stocks surge amid mixed results

It was a day of mixed results and strong gains in share price for some of Australia's largest companies.

Some of the notable strong performers today were a2 Milk, Seven Group Holdings and Fairfax (despite its fall in profit).

Baby formula booms

a2 Milk was the best performing stock on the ASX 200, surging 25.4 per cent to $10.92 just before 2pm AEDT.

This was after the company announced its net profit jumped by 150 per cent to $91.9 million ($NZ98.5 million) on surging sales of infant formula in Australia and China.

Sales of its a2 Platinum range totalled $341 million, which was 78 per cent of its total revenue for the six months ending December 2017.

Investors also piled onto a2 stocks over its announcement that it had entered into a deal with major dairy company Fonterra — for a wide range of supply, distribution, sales and marketing arrangements in certain markets.

Under this "strategic relationship", Fonterra will produce, distribute, sell and market a2-branded milk in New Zealand.

Fonterra will also, initially, exclusively supply A1 protein-free milk products to a2 Milk (in bulk power and consumer packaged form).

The benefits of gas demand

Also popular amongs investors was diversified investment company Seven Group Holdings (SGH), who also owns the largest stake (41 per cent) in Seven West Media, which in turn owns Channel 7.

SGH was the second-best stock on the ASX 200, gaining 13.8 per cent to $18.76, following its announcement that underlying half-year net profit rose 81 per cent to $159.8 million.

But on a statutory basis, its net profit fell 41 per cent to $168.6 million, due partly to a $91.3 million impairment in its Seven West Media investment.

The company also upgraded its full-year guidance on expectations its businesses WesTrac (an Australian dealer of Caterpillar heavy equipment) and Coates Hire (an equipment hire company) will have "continued momentum" into the second half.

"The continued strength of the mining production cycle with greater utilisation of fleet has supported parts growth and component demand at WesTrac," said SGH's chief executive Ryan Stokes, who is the son of Seven West Media chairman Kerry Stokes.

"Coates Hire remains well positioned to benefit from the strong east coast infrastructure demand and our increased stake in Beach Energy (about 22.9 per cent) provides the group with increased exposure to east coast gas demand."

Its underlying pre-tax earnings lifted 42 per cent to $223.5 million during the six-month period.

In addition, SGH has increased its interim dividend by 5 per cent to 21 cents per share.

Fairfax shares up, profits down

Although its first-half statutory net profit dropped by 54 per cent to $38.5 million, that didn't stop Fairfax Media's shares lifting by 2.6 per cent to 68 cents.

The publisher of the Sydney Morning Herald and The Age attributed this result to $38.7 million worth of write-downs related to its recent spin-off of Domain into a separate company, of which it owns a 60 per cent stake.

Domain, its real-estate classifieds business, was a driver of the revenue growth for Fairfax amid Australia's housing boom.

But even without those impairments, Fairfax's underlying net profit fell 9.9 per cent to $76.3 million in the half-year ending December 2017 — on revenue of $877.1 million (3.9 per cent lower than last year).

Digital earnings, particularly from Domain, failed to offset a downturn in advertising revenue as newspaper readers opt for cheaper online content, and advertisers focus more of their spending on online platforms like Google and Facebook.

In a statement to the ASX, Fairfax chief executive Greg Hywood said his company would "exit around 35 per cent of our New Zealand print publications through sale or closure".

This cost-cutting measure follows a recent judgment by the New Zealand High Court in December to support the NZ competition regulator's decision to block the merger of Fairfax and NZME, the owner of NZ's top-selling newspaper.

Fairfax declared an interim dividend of 1.1 cents per share, fully franked, which is almost half of its dividend from last year.

Just before 2pm AEDT, the company's share price rose 3 per cent to 68 cents per share.

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