Sharechat Logo

First NZ upgrades Fonterra recommendation to 'outperform', cites buying opportunity

Friday 2nd August 2013

Text too small?

First NZ Capital upgraded its recommendation for units in Fonterra Cooperative Group's shareholders fund to 'outperform' from 'neutral', saying a short-term pullback in the price is a buying opportunity.

At the same time, the brokerage lowered its earnings forecasts for Fonterra for the coming three years and reduced its 12-month target price on the units to $8.30 from $8.50 after the dairy company last week cut its forecast for 2013 earnings because of a drought in New Zealand and intense competition in Australia.

The drought-related factors that led Fonterra to pull back earnings forecasts are non-enduring events, First NZ said in a note.

"Our long-term view on Fonterra remains unaltered," the brokerage said. "The prize of successful execution of the company's cost initiatives in the next two years, coupled with its consumer brands strategy over the next three to five years is rewarding."

Fonterra is the largest global supplier of basic dairy commodities into the global milk pool and the cooperative could double its earnings before interest and tax from $1 billion to $2 billion over time by significantly expanding its existing consumer and business service brands through organic and value accretive acquisition growth in the global dairy market, as well as from better cost efficiency, First NZ said,

"We would use short-term pullback in Fonterra's stock price as a buying opportunity," the brokerage said.

Fonterra's units dropped 2.8 percent after the earnings downgrade on July 25. Today, the units slipped 0.4 percent to $7.15, crimping their gain this year to 2.1 percent.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Fonterra Shareholders' Fund Units
Fonterra normalised earnings meet guidance; drought hurts NZ, ANZ profit falls
Fonterra hikes forecast payout again on eve of earnings result; warns on 1H of 2014 year
Fonterra looks to double Chinese milk production with second farming hub
Fonterra managers failed to immediately escalate WPC80 concerns to CEO, review finds
China repair job under way with next week's Fonterra board visit
Fonterra hikes forecast farmgate price 30 cts on strong international prices
Fonterra Shareholders’ Fund Unit (FSF.NZ)
Fonterra denies DCD claims after Sri Lankan court imposes temporary ban on products
Fonterra food scare claims scalp of NZ Milk Gary Romano

IRG See IRG research reports