Analysts Forecast End of Super-Profit Era for Fonterra Amidst Positive Interim Results
Source: The DairyNews
Equity analysts commend Fonterra for maintaining profitability in the interim results for FY2024, yet caution that the era of extraordinary profits is drawing to a close as returns revert to historical norms and margin growth moderates in Consumer and Foodservice sectors.
While the latter half of FY24 is expected to witness normalized trading conditions and margin contractions, analysts advise sharemarket investors and farmer-shareholders to maintain optimism.
Arie Dekker, Head of Research at Jarden, lauds the positive impact of strong results on Fonterra's balance sheet, highlighting the cooperative's improved capital structure and enhanced flexibility for milk sharing, especially advantageous amidst competitors' struggles.
Referring to Synlait, Dekker notes Fonterra's potential to attract farmers and bolster manufacturing capacity. He suggests the prospect of Fonterra divesting its Australian assets coupled with Fonterra Brands NZ, potentially resulting in significant capital returns to shareholders.
Projections by three brokerages estimate net profit after tax for FY24 at around $1 billion, declining to $750 million to $850 million in the subsequent two financial years. Earnings per share (EPS) are forecasted at 58-64c in FY24, 45-53c in FY25, and 45-55c in FY26, with dividend forecasts aligning with Fonterra's policy of distributing 40-60% of earnings.
Forsyth Barr analysts Montgomerie and Crozier anticipate dividends towards the upper end of Fonterra's policy range. Jarden and Craigs Investment Partners have raised their target prices for Fonterra Shareholders Fund (FSF) units by 6%, with overweight ratings.
While acknowledging Fonterra's remarkable performance, Craigs analysts caution of potential challenges ahead and predict a down year in FY25. Nonetheless, they maintain that Fonterra units offer good value compared to agricultural peers.
The Forsyth Barr duo express confidence in Fonterra's execution of its 2021 strategy, noting effective cost control measures amid inflationary pressures and ongoing investments for operational efficiencies, driving modest EPS upgrades.
Arie Dekker, Head of Research at Jarden, lauds the positive impact of strong results on Fonterra's balance sheet, highlighting the cooperative's improved capital structure and enhanced flexibility for milk sharing, especially advantageous amidst competitors' struggles.
Referring to Synlait, Dekker notes Fonterra's potential to attract farmers and bolster manufacturing capacity. He suggests the prospect of Fonterra divesting its Australian assets coupled with Fonterra Brands NZ, potentially resulting in significant capital returns to shareholders.
Projections by three brokerages estimate net profit after tax for FY24 at around $1 billion, declining to $750 million to $850 million in the subsequent two financial years. Earnings per share (EPS) are forecasted at 58-64c in FY24, 45-53c in FY25, and 45-55c in FY26, with dividend forecasts aligning with Fonterra's policy of distributing 40-60% of earnings.
Forsyth Barr analysts Montgomerie and Crozier anticipate dividends towards the upper end of Fonterra's policy range. Jarden and Craigs Investment Partners have raised their target prices for Fonterra Shareholders Fund (FSF) units by 6%, with overweight ratings.
While acknowledging Fonterra's remarkable performance, Craigs analysts caution of potential challenges ahead and predict a down year in FY25. Nonetheless, they maintain that Fonterra units offer good value compared to agricultural peers.
The Forsyth Barr duo express confidence in Fonterra's execution of its 2021 strategy, noting effective cost control measures amid inflationary pressures and ongoing investments for operational efficiencies, driving modest EPS upgrades.
