Rich food for thought on Fonterra
FUND managers are getting their teeth stuck into Fonterra's pre-marketing research, with material from Deutsche Bank/Craigs and UBS hitting desks late this week.
Fonterra is the New Zealand-based dairy giant that is the world's largest milk producer and exporter of dairy ingredients including milk powders, cheese and butter. It is seeking to raise up to $NZ500 million ($400 million) within the next two months, by selling units in a trust that mirror the economic benefits of Fonterra shares, The Australian Financial Review reports.
Broker Goldman Sachs got the ball rolling when it distributed its report earlier this week, while other lead managers UBS and Deutsche have also chipped in.
UBS put a $NZ7.2 billion to $NZ8.1 billion value on Fonterra's equity, which implied an 11 to 12 times earnings before interest and tax multiple for the 2013 financial year and cash yield of up to 7 per cent.
The numbers imply a valuation of up to $NZ5.40 per Fonterra share, which was in line with Goldman Sachs' view.
UBS analysts said earnings from Fonterra's milk processing business, which makes up about 50 per cent of EBIT, should be stable. The stable revenues should provide some comfort, given gearing is expected to be 37 per cent in the 2013 financial year.
UBS highlighted potential operating margin improvements in the business.
Margins are a consistent theme across the reports, with each broker using margin improvements as a key marketing point. Goldman Sachs said Fonterra's EBIT margins were 5.8 per cent in the 2012 financial year, almost one-third of rival Nestle's dairy and nutrition unit.
The Fonterra Shareholders' Fund is expected to list in Australia and New Zealand before the end of the year.
The Australian Financial ReviewSource: http://www.afr.com