Food manufacturer and distributer Goodman Fielder (GFF), has been upgraded to HOLD from SELL by Investment Research Group (IRG), after the steep decline in GFF’s shares and as its equity raising nears completion.
GFF is raising $259 million in a 5 for 12 pro-rata Entitlement Offer of new Goodman Fielder shares at an offer price of A$0.45 per New Share. The food company looked debt heavy, and its recent $167 million loss for the year ending 30 June 2011 exacerbated the situation, which led to the equity raising.
The proceeds from the Entitlement Offer will be used to ensure greater balance sheet flexibility for Goodman Fielder so it can pursue medium and longer term value accretive initiatives. It will also provide additional headroom under Goodman Fielder’s financing facilities.
GFF is also undertaking a Strategic Review which is a medium to long term project with management’s next update scheduled for the 17 November 2011 Investor Day. It is management’s intention to action projects arising from the review as they are assessed and ready for implementation.
The Retail Offer opens on Tuesday, 4 October 2011 and will close at 5.00pm (AEDT) on Friday 21 October 2011.
GFF reported a loss of $167 million in the year to 30 June 2011 after the inclusion of a non-cash impairment charge of $300 million, due to weak trading in the Baking division during the second half of the year. Excluding the impairment charge GFF reported an underlying net profit of $133 million for the year, which was still down a significant 17% on the previous year.
Even excluding the impairment charge, GFF’s underlying result was considerably lower and revenue also fell 4% to $2.5 billion. GFF blamed the result on weakened consumer confidence, higher soft commodity costs, fierce retail competition and a strong AUD.
GFF still has issues to deal with including continuing rising soft commodity prices and a new CEO, not to mention its $955 million in net debt.
Recommendation: upgraded from SELL to HOLD.
GFF shares today traded at NZ$0.67
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