Morningstar Says No To Fonterra Offer

Tuesday, 20 November 2012, 12:29 pm
Press Release: Morningstar

A novel structure to participate in Fonterra’s growth but pricing uncertainty prompts us to remain on the sidelines.

Fonterra Shareholders’ Fund Pre-IPO Report
Recommendation: Do Not Subscribe

Investment Perspective
The Fonterra Shareholders’ Fund provides individual investors an opportunity to participate in Fonterra’s performance through dividends and unit price appreciation. Being a significant exporter of milk and milk products, Fonterra’s fortunes are inextricably linked to growth in dairy consumption particularly in Asia and Latin America. However we believe the company does not have an economic moat as it generates low returns on capital. We mainly attribute this to the commodity nature of its business. The higher margin branded goods category accounting for 35–40% of earnings offers the potential to lift returns but the presence of established multinational players like Nestle and Danone makes this task challenging…..

PDF File of Full Report

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