Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Fonterra fund pricing uncertainty leaves Morningstar cold

Fonterra shareholder fund pricing uncertainty leaves Morningstar cold

By Paul McBeth

Nov. 20 (BusinessDesk) - Investors should steer of the Fonterra Shareholders' Fund, which seeks to raise up to $525 million to reduce the dairy cooperative's redemption risk, until the units start trading, according to Morningstar Research.

However, the units have too many pricing uncertainties in the bookbuild phase.

The research firm gives a 'do not subscribe' recommendation for the fund's initial public offering, saying Fonterra Cooperative Group lacks pricing power over its dairy commodities, generates low returns compared to its multinational peers, and investors won't know the price they are paying until after the bookbuild process is completed on Nov. 27.

The float has an indicative price range of between $4.60 and $5.50 per unit, though Fonterra has discretion to price it above that range. Morningstar estimates fair value at $5.50 per unit. Institutional investors report demand for the units has been heavy and scaling of applications is anticipated in order to meet demand.

"Our main concern is that prospective investors won't know the price they are paying and quantity of shares they would be receiving until after the bookbuild process is completed," analyst Nachi Moghe said in his report. "As a result of this uncertainty, we would advocate investors wait for the units to list on the market and consider buying at a price below $4.95 per unit."

Unit holders in the fund will get the rights to Fonterra’s share dividends without owning the shares or holding voting rights. The change will substantially reduce the share redemption risk on Fonterra’s own books, which has billowed to more than $700 million in recent years, by giving farmers a venue to trade the shares among themselves.

Fonterra's main risks come from movements in global dairy prices, exchange rates and New Zealand's milk supply, Moghe said.

A reliance on whole milk and skim milk powder and a lack of branded products means the dairy exporter has smaller margins than its global competitors. It will probably face "significant competition from companies like Nestle and Danone" as Fonterra moves to sell more higher-value products, Moghe said.

"Multi-national food companies on the other hand have well diversified operations in relation to sales and raw material procurement. They also mainly sell branded products which enjoy better pricing power than commodity products," he said.

"As a result we think the valuation discount is warranted," Moghe said.

Pricing and allocations are expected to be announced after the bookbuild on Nov. 27, with the units set to list on the NZX on Nov. 30 and on the ASX on Dec. 5.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Sky City : Auckland Convention Centre Cost Jumps By A Fifth

SkyCity Entertainment Group, the casino and hotel operator, is in talks with the government on how to fund the increased cost of as much as $130 million to build an international convention centre in downtown Auckland, with further gambling concessions ruled out. The Auckland-based company has increased its estimate to build the centre to between $470 million and $530 million as the construction boom across the country drives up building costs and design changes add to the bill.
More>>

ALSO:

RMTU: Mediation Between Lyttelton Port And Union Fails

The Rail and Maritime Union (RMTU) has opted to continue its overtime ban indefinitely after mediation with the Lyttelton Port of Christchurch (LPC) failed to progress collective bargaining. More>>

Earlier:

Science Policy: Callaghan, NSC Funding Knocked In Submissions

Callaghan Innovation, which was last year allocated a budget of $566 million over four years to dish out research and development grants, and the National Science Challenges attracted criticism in submissions on the government’s draft national statement of science investment, with science funding largely seen as too fragmented. More>>

ALSO:

Scoop Business: Spark, Voda And Telstra To Lay New Trans-Tasman Cable

Spark New Zealand and Vodafone, New Zealand’s two dominant telecommunications providers, in partnership with Australian provider Telstra, will spend US$70 million building a trans-Tasman submarine cable to bolster broadband traffic between the neighbouring countries and the rest of the world. More>>

ALSO:

More:

Statistics: Current Account Deficit Widens

New Zealand's annual current account deficit was $6.1 billion (2.6 percent of GDP) for the year ended September 2014. This compares with a deficit of $5.8 billion (2.5 percent of GDP) for the year ended June 2014. More>>

ALSO:

Still In The Red: NZ Govt Shunts Out Surplus To 2016

The New Zealand government has pushed out its targeted return to surplus for a year as falling dairy prices and a low inflation environment has kept a lid on its rising tax take, but is still dangling a possible tax cut in 2017, the next election year and promising to try and achieve the surplus pledge on which it campaigned for election in September. More>>

ALSO:

Job Insecurity: Time For Jobs That Count In The Meat Industry

“Meat Workers face it all”, says Graham Cooke, Meat Workers Union National Secretary. “Seasonal work, dangerous jobs, casual and zero hours contracts, and increasing pressure on workers to join non-union individual agreements. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news