Daily ShareChat: Goodman Fielder

Goodman Fielder's sale of its edible fats and oils operations to Cargill for $A240 million is positive on a number of factors, says Sam Haddad, an analyst at Aegis Equities Research.

"Firstly, the sale price is at a healthy premium above book value." The company says it will make about a $A90 million gross profit.

"Second, the sale enables Goodman Fielder to exit from an increasingly competitive market segment which, in part, has been driven by pricing pressure from offshore entrant Cargill and the reduced market distribution network," Haddad says.

"Third, sale proceeds will allow Goodman Fielder to reduce debt as well as provide balance sheet strength for future acquisition opportunities."

It will also mean the company can focus more attention on its consumer brands portfolio and the sale reduces the company's exposure to volatile commodity prices.

Haddad says the improvement in consumer confidence is expected to ease trading down behaviour to private brand goods.

"We view the exit out of the commercial oil and fats business as a positive strategy which will enable management to increase its focus on driving product innovation." Reduced commodity input costs should also help improve margins in 2010 when savings from management's restructuring initiatives should also begin to flow.

BROKER CALL:  Aegis Equities Research rate Goodman Fielder as neutral.

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