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.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Oceans: NOAA Declares Third Ever Global Coral Bleaching Event

As record ocean temperatures cause widespread coral bleaching across Hawaii, NOAA scientists confirm the same stressful conditions are expanding to the Caribbean and may last into the new year, prompting the declaration of the third global coral bleaching event ever on record. More>>

Scoop Business: A Decade Of Government Pre-Seed Investment

More publicly-funded science is being commercialised after a decade of government ‘pre-see’d investment, according to an independent review. More>>


Solid Energy: Plan To Shut Unprofitable Huntly East Mine

Solid Energy, the state-owned coal miner in voluntary administration, plans to shut down its unprofitable Huntly East mine and lay off 65 staff after deciding the site stands "no chance whatsoever" of finding a buyer. More>>


E Tū: Merger Creates NZ's Biggest Private Sector Union

E tū has been created by the merger of the Engineering, Printing and Manufacturing Union and Service and Food Workers’ Union. It represents more than 50,000 working New Zealanders in industries as diverse as aviation, construction, journalism, food manufacturing, mining and cleaning. More>>


Internet: NZ Govt Lifts Target Speeds For Rural Broadband

The government has lifted its expectations on faster broadband speeds for rural New Zealand as it targets increased spending on research and development in the country's information and communications technology sector, which it sees as a key driver for export growth. More>>


Banks: Westpac Keeps Core Government Transactions Contract

The local arm of Westpac Banking Corp has kept its contract with the New Zealand government to provide core transactions, but will have to share peripheral services with its rivals. More>>


Science Investment Plan: Universities Welcome Statement

Universities New Zealand has welcomed the National Statement of Science Investment released by the Government today... this is a critical document as it sets out the Government’s ten-year strategic direction that will guide future investment in New Zealand’s science system. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news