Farmers Weekly NZ October 7 2019

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Vol 18 No 39, October 7, 2019

Analysts doubt reset Hugh Stringleman

F

hugh.stringleman@globalhq.co.nz

ONTERRA is on a long and challenging journey to redemption, longtime sceptical equities analyst Arie Dekker, of Jarden, said after the latest results were announced and explained. A crisis of poor investments has forced Fonterra to take action and while its intent and direction are good he does not have enough detailed information to be convinced of the outcome. Dekker said key issues include too much debt, uncertainty how proceeds from asset sales will be treated and lack of clarity on the base level of earnings from the ingredients businesses. Because Fonterra had another very tough year and the share market price reflects the low level of collective confidence Jarden reduced its target price by 54c to $3.85. Its new dividend forecasts are 13c and 17c for the next two financial years. Dekker agrees with the new, conservative dividend policy, saying Fonterra had retained $360 million over the nearly 20 years since formation. Forsyth Barr analyst Chelsea Leadbetter said the results contain early, bright spots from the strategy reset but they are outweighed by pressure areas, particularly in offshore areas like Australia and Latin America. The streamlined strategy and

lower dividend policy appear sensible but the planned turnaround won’t be smooth sailing. Earnings per share are forecast to be about 22c this financial year, followed by 31.5c in FY21, from which Leadbetter forecast dividend payments of 9c and 17c respectively.

Underlying profit continues to worsen while what previously looked like one-off hits to the business are now becoming regular. Nathan Penny ASB The new business model with three geographic divisions should be a more focused selling machine, arguably dictated by necessity. The earnings guidance for FY20 is 15-25c a share with targets of 40c and 50c on three-year and five-year plans. “These targets don’t appear unrealistic at first glance, taking the company back to recent levels. “However, performance over the past few years has been underwhelming and so improved execution is required to get confidence this recovery is achievable.

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Another farmer seeks Fonterra seat Hugh Stringleman hugh.stringleman@globalhq.co.nz

NORTHERN dairy farmer Victor Rutherford has used the self-nomination option for the Fonterra board election, bringing the field to five this year. He has a 600-cow farm at Dargaville under a farm manager and lives and works in Auckland in property development and investment. Rutherford has been a dairy farmer for 23 years beginning with a conversion near Te Aroha and supplying NZ Dairy Group before buying a second farm in Northland and subsequently selling up in Waikato. With the written support of 35 shareholders he was the only non-assessed candidate nominated in the 10 days from September 17 to 27. The other four candidates went through the independent assessment panel route. They are incumbents Donna Smit and Andy Macfarlane and newcomers Cathy Quinn and Philipp Haas. The election is for two

“Management has multiple pressure points to tackle and coupled with volatile input prices and competitive markets make this a complex task,” Leadbetter said. ASB rural economist Nathan Penny said there is little in the Fonterra results to be rosy about. “Underlying profit continues to worsen while what previously looked like one-off hits to the business are now becoming regular. “On paper Fonterra has a new, simplified and sensible strategy

CONTENDER: Northland dairy farmer and property investor Victor Rutherford is a non-assessed candidate in this year’s Fonterra election.

farmer-directors and profiles and position statements will be sent to all Fonterra shareholders on October 15, followed by a roadshow of candidate

but we remain healthily sceptical. “After a string of poor results only a subsequent string of strong results will make us believers,” Penny concluded. Craigs analysts said it is prudent to maintain their conservative outlook on Fonterra, given the company’s poor record on execution and the likelihood more capital will be required from farmers. Fonterra got some credit for better fourth-quarter earnings but that was boosted by non-payment of management bonuses and the

meetings beginning on October 22. Voting closes on November 5 before the annual meeting in Invercargill on November 7.

migration of some overheads into the farmgate milk price. Management has done well in making asset sales to repair the balance sheet, with the forecast of a 38% debt ratio this time next year. The target share price for Craigs is $3.20, up 7% after the results report, but based on a current market price of $3.50 their recommendation is to sell.

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