The prospects of Fonterra paying a good dividend and a capital return this year have driven up the Fonterra Shareholders Fund (FSF) unit price from $3.05 to $3.40.
Fonterra farmer-only supply shares (FCG) have also risen in value, from $2.60 to $3.00.
The disparity between FSF and FCG prices is due to uncertainty about the new flexible shareholding structure to be implemented on March 28, and its impact on share prices.
Fonterra’s interim FY23 results contained good news for earnings, profits and dividends along with an intention to pay 50c a share in capital return in October, funded from the sale of its Chilean subsidiary Soprole.
Non-farmer investors in the FSF units will also benefit from the 50c and what is expected to be a dividend of around 33c for FY23.
Craigs Investment Partners called FY23 a year of supernormal profits and predicted that Fonterra would pay as much as $1.07 a FCG share and FSF investment unit over the next 18 months.
This would be made up of 33c in the current financial year, the 50c Soprole capital return and a further 24c dividend in FY24.
Craigs nominated a target price for the FSF units of $3.80 but also warned that the new flexible shareholding structure could lead to price volatility.
Forsyth Barr expects Fonterra’s full-year results to show a 10% increase in revenue to around $24.4 billion, from which it would derive a normalised net profit of $1bn, record earnings per share of around 67c and a likely dividend of 32c.
But as the currently favourable stream returns normalise, earnings per share expectations drop to 45c in the following two financial years, and dividends to around 25c.
Fonterra Co-operative Council chair John Stevenson said farmers will be pleased to see the increased earnings guidance range, up 5c to 55c-75c.
“Our co-op continues to perform well in an environment of ongoing volatility and disruption due to its scale and its ability to move our milk into products and markets where it sees favourable prices,” Stevenson said.
He said farmers will welcome the 10c interim dividend and the prospect of the 50c capital return in October, at which time the full-year dividend will also be paid.
Fonterra said its Ingredients division had an extraordinary first half, with revenue up 28% to $8.7bn and normalised earnings before interest and tax up 118% to $911 million.
Milk was diverted from powder to protein and cheese and that flexibility and optimisation was helped by lower milk volumes, down 3%.
Non-reference products began the financial year around US$6000 a tonne on average versus only $4500 for the reference products, and that gap continued when all prices fell somewhat towards the end of the calendar year.
The Consumer and Foodservice channels benefitted from improved in-market prices but higher input costs and ongoing pressure on margins impacted the Consumer channel performance.
Fonterra Brands in New Zealand is under margin pressure and performance is not improving as fast as planned.
Therefore, the valuation of FBNZ was revised down by $92m and the Asian consumer brands, Anlene, Chesdale and Anmum, took a $70m devaluation.
The newly named Global Markets division, formerly Asia-Pacific and Africa, Middle East, Europe, North America, took the hit from impairments in Consumer.
The Greater China division was also down in the Consumer segment but that was positively outweighed by Foodservice earnings.
Both divisions had very positive earnings when their share of Ingredients sales were included.
Gross profit after tax was $691m, less the $315m impact of impairments, inflation and exchange rates, leaving normalised net profit at $611m and a reported net profit after tax of $546m, up 50%.
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