Fonterra Cooperative Council chair James Barron says it was good to see the forecast farm gate milk price and normalised earnings per share ranges maintained.
Fonterra’s first half results in FY2022 have been acknowledged as a good effort in an environment of very high milk prices.
In the past Fonterra has claimed it can cope with high milk payouts to farmers and maintain ongoing profitability from value-add dairy foods but not delivered.
Analysts say the FY22 interim results show Fonterra’s new strategy is working, the balance sheet is getting stronger and a planned $1 billion capital return to shareholders remains on track.
“The first half result showcases Fonterra’s ongoing execution and discipline, however there is still more work ahead to reach its long-term strategic priorities and targets,” Forsyth Barr analysts Matt Montgomerie and Andy Bowley said.
Under a heading Edging Forward, they said the modest earnings per share (eps) decline relative to FY21 is a good outcome against a backdrop of materially elevated milk prices.
“It reflects what we view as ongoing robust execution by Fonterra,” the analysts said.
Jarden’s head of research Arie Dekker said against record high milk input costs, the first half earnings of 22 cents and maintenance of the FY22 guidance of 25-35c is a solid outcome.
He expects the full-year result (to be announced in September) to be 33c eps, whereas Forsyth Barr is picking 31c eps and a 15c dividend.
Craigs Investment Partners is also predicting 33c eps and 17c dividend, of which 5c interim will be paid on April 14.
Dekker noted the strong support from farmers for the proposed share structural changes despite the share price and liquidity impact.
That reflected a common interest in maintaining a strong cooperative and recognised the importance of critical mass in NZ milk supply.
Since the changes were announced the market prices of the Fonterra Shareholders’ Fund units (FSF) and the farmer-only supply shares (FCG) have traded down, FSF currently $3.50 and FCG $3.
When the Government approves the changes and some of the uncertainties resolve, Dekker expects the prices to increase to $4.
Fonterra’s intention to return $1b of capital to shareholders and unitholders was also welcomed by the equities analysts.
“We were happy to see the company earmark proceeds from further non-core asset divestments for shareholders by way of capital return,” Dekker said.
“Performance in both assets (Chile and Australia) is turning around and we expect Fonterra to take its time in exploring all options, particularly for its Australian business,” Montgomerie and Bowley said.
Craigs thought the Chilean divestment may be tracking ahead of schedule, which could signal a return of capital earlier than originally planned.
Fonterra Cooperative Council chair James Barron said it was great to see chief executive Miles Hurrell and his team starting to make a habit of hitting their targets.
“It is good to see the forecast farm gate milk price and normalised earnings per share ranges maintained, other results largely in line with expectations, debt continuing to decrease, no normalisations and a 5c interim dividend,” Barron said.
The cooperative had scale and diversity in markets in which to shift milk to products and categories that are most profitable in a challenging environment.
