FSF - Fonterra Shareholders Fund

[BlackPeter]

Interesting that the SP has fallen back slightly after the divestment plan was ratified. Although I note there still needs to be another shareholder vote on the return of capital, although that should be a formality as Management has already flagged a return of $2 per share/unit.
Peculiar then that some have chosen to sell now ahead of an assured big payday in the first half of next year. Thoughts as to why?

Perhaps the recent decline in dairy auction prices and associated concerns regarding Fonterra's ability to maintain margins, revenue targets etc???

Absolutely - Fonterra is a highly cyclical company - and milk price seems to just start coming down form another high. Past years show what they do with shareholders when times are bad.

Makes a lot of sense to sell the shares before everybody drops them, doesn't it?

[Left Field]

Absolutely ....
Makes a lot of sense to sell the shares before everybody drops them, doesn't it?

I wouldn't go as far as saying FSF is a 'sell'.

Much depends on your investing strategy. Traders will probably sell for short term profits...... those with a longer term focus may take their $2 payout and wait to see how Fonterra's new 'non-branded ingredients focused' strategy works out (maybe even using their new cash to buy more (cheaper) FSF shares,) while enjoying FSF  dividends (currently around 7% on today's SP).

JMHO. DYOR.



 

[Habitz]

(maybe even using their new cash to buy more (cheaper) FSF shares,)

Yes it's interesting to think what FSF will be worth post distribution. The public seem to think that Fonterra holders and dairy farmers are getting $400,000 of easy cash. Wrong. Shareholders are mostly paying for their own dividend with a commensurate drop in market price. We'll see

[LoungeLizard]

My view is that the Fonterra's core business as the biggest exporter of raw dairy product in the world, should be about as future-proof as any industry although there will be ups and downs with dairy prices. Fonterra is in very good shape, so if one takes a long lens to the industry,  it is probably worthwhile taking the big payday, buckling up for the drop in SP and then waiting out for the recovery

disc. holder and buying more.

[BlackPeter]

I wouldn't go as far as saying FSF is a 'sell'.

Much depends on your investing strategy. Traders will probably sell for short term profits...... those with a longer term focus may take their $2 payout and wait to see how Fonterra's new 'non-branded ingredients focused' strategy works out (maybe even using their new cash to buy more (cheaper) FSF shares,) while enjoying FSF  dividends (currently around 7% on today's SP).

JMHO. DYOR.



 

I didn't call them a sell, I was just commenting on market development.

Having said that - they are currently quite high, and unless there is something new and still unknown happening, the $2 payback is sort of booked in, and milkprice will go up and down in future, as it always did in the past.

Fonterra is a big milkpowder producer and competing with the rest of the world. Agricultural products are just cyclical.

Based on current EP, they are probably a hold. Its just that cyclicals at or after their high typically come down, before they go up again. Not my preferred time for buying, but hey - good luck to all.

[Left Field]

Latest from Fonterra

https://www.nzx.com/announcements/463914

Fonterra provides FY26 Q1 business update
 
 • Total Group profit after tax: $278 million, up $15 million
 • Continuing operations profit after tax: $158 million, down $10 million
 • FY26 forecast earnings for continuing operations: 45-65 cents per share
 • 2025/26 forecast Farmgate Milk Price: $9.00 - $10.00 per kgMS, with midpoint of $9.50 per kgMS.

[LoungeLizard]

https://www.nzx.com/announcements/464405

- Shareholder vote on $2 per unit return of capital on 19 February
- The higher return on capital (12%) of the Foodstuffs channel seems to have been the basis for the divestment of the Consumer business.
- Targeting earnings to be back to FY25 levels by FY28, offsetting the divestment.
- Forecast earnings for FY26 are 45-65 cents per share for continuing operations.

[Otago K]

Bit of late from the Farmers Weekly 8 December print edition on the Fonterra Shareholders Fund, article quotes Forbar analyst predictions post the capital return. At the 8% yield and forecast 45 - 50c dividends I have calculated out an indicated value of $5.62 - $6.25 envisaged for the units is being suggested.
https://www.farmersweekly.co.nz/markets/whats-next-for-fonterra-shares/

At the end of the above article references to the following page for the online webinar "Fonterra and the Future" by Forbar
https://www.forsythbarr.co.nz/home/federated-farmers

Bit of focus on the global market supply dynamics by the NZX Head Of Dairy Insights
https://www.farmersweekly.co.nz/markets/global-milk-growth-weighs-on-prices/

Further article around global supply growth impacts to prices
https://www.farmersweekly.co.nz/markets/production-growth-driving-dairy-prices-lower-rabobank/

[LoungeLizard]

Bit of late from the Farmers Weekly 8 December print edition on the Fonterra Shareholders Fund, article quotes Forbar analyst predictions post the capital return. At the 8% yield and forecast 45 - 50c dividends I have calculated out an indicated value of $5.62 - $6.25 envisaged for the units is being suggested.
https://www.farmersweekly.co.nz/markets/whats-next-for-fonterra-shares/

The at the end of the above article references to the following page for the online webinar "Fonterra and the Future" by Forbar
https://www.forsythbarr.co.nz/home/federated-farmers

Bit of focus on the global market supply dynamics by the NZX Head Of Dairy Insights
https://www.farmersweekly.co.nz/markets/global-milk-growth-weighs-on-prices/

Further article around global supply growth impacts to prices
https://www.farmersweekly.co.nz/markets/production-growth-driving-dairy-prices-lower-rabobank/

Where the SP will settle, post return of capital, is the big question. I'd be very surprised if it goes under $6, but who knows really? I suspect there will be movement towards $9 as we get closer to the record date for payment early next year.

But if the numbers suggest an 8% return and Fonterra meet their goal of earnings retuning to pre-divestment levels in three years then taking the payday and waiting it out seems to me to be the best strategy.

 Either way unit holders have had a very good ride in the last 18 months where the SP has doubled, dividends have been very healthy and early next year a $2 per unit tax-free payment will be made.
No complaints here   

[Nizzy]

I wouldn't go as far as saying FSF is a 'sell'.

Much depends on your investing strategy. Traders will probably sell for short term profits...... those with a longer term focus may take their $2 payout and wait to see how Fonterra's new 'non-branded ingredients focused' strategy works out (maybe even using their new cash to buy more (cheaper) FSF shares,) while enjoying FSF  dividends (currently around 7% on today's SP).

JMHO. DYOR.



 

just a point - Fonterra ingredients and food service products are certainly "branded". Just because the end consumer doesn't see them on a retail supermarket shelf doesn't mean they aren't adding good value. Just a different part of the chain. There's many successful global ingredients companies out there, often doing better these days than the large consumer brand companies like Nestle or Unilever who are facing real challenges, not least from the growth of supermarket own brands.     

[Left Field]

just a point - Fonterra ingredients and food service products are certainly "branded". Just because the end consumer doesn't see them on a retail supermarket shelf doesn't mean they aren't adding good value. Just a different part of the chain. There's many successful global ingredients companies out there, often doing better these days than the large consumer brand companies like Nestle or Unilever who are facing real challenges, not least from the growth of supermarket own brands.     

Indeed.... and while no one can predict the future, I imagine Fonterra have worked through many scenarios for their future business models and would not be surprised to hear them announce a revenue upgrade sometime next year.

Pure speculation of course but more likely than the imminent demise predicted by the likes of Winston Peters.

JMHO DYOR

[LoungeLizard]

just a point - Fonterra ingredients and food service products are certainly "branded". Just because the end consumer doesn't see them on a retail supermarket shelf doesn't mean they aren't adding good value. Just a different part of the chain. There's many successful global ingredients companies out there, often doing better these days than the large consumer brand companies like Nestle or Unilever who are facing real challenges, not least from the growth of supermarket own brands.     

Agreed. The ingredients business will still have that premium branding associated with NZ dairy.

The theory is that a more streamlined, focussed Ingredients business with a higher return on capital than the Consumer business, will be more profitable and offer better returns to investors. I'm pessimistic about the global economy as such but even in a downturn or heaven forbid, a crash, people still need their dairy products. A long-term hold for me, and I'm looking forward to a pretty big payday in the first half of next year.

[LoungeLizard]

https://www.nzx.com/announcements/464578

From the Chair's address at the AGM:

"As mentioned, Fonterra's strong performance, and progress on the divestment of its
Consumer business is reflected in the total shareholder returns for the 12-months of 68%.
Contributing to the 68% is 300 cents in unit price appreciation and 57 cents in distributions.
Over the same period, FCG and the S&P NZX50 Index returned 50% and 5%, respectively."

Can't think of many company's that have reported a 68% return to shareholders over the last 12 months?

[BlackPeter]

https://www.nzx.com/announcements/464578

From the Chair's address at the AGM:

"As mentioned, Fonterra's strong performance, and progress on the divestment of its
Consumer business is reflected in the total shareholder returns for the 12-months of 68%.
Contributing to the 68% is 300 cents in unit price appreciation and 57 cents in distributions.
Over the same period, FCG and the S&P NZX50 Index returned 50% and 5%, respectively."

Can't think of many company's that have reported a 68% return to shareholders over the last 12 months?

Quite silly argument. Pick one really strong uptake of a long turn downcycler, forget the 12 years where the board just drove the SP down ... and turn the one (and so far only) biggie into a sales argument?

Anybody noticed that they only brought the SP back to where it was in 2013 - any chair useful any of the money (s)he gets would have noticed that.

Just wondering whether the chair picked as well the 5 and 10 years annual returns to holders? Interesting as well why (s)he didn't pick the returns ending in 2022 / 2023?

I would say this is as stupid as selling preloved cars, but unfortunately - the used car salespeople have here in NZ much better boards and amangement than Fonterra seems to have ...

BTW: milk prices dropping ...

You cannot view this attachment.

[LoungeLizard]

Quite silly argument. Pick one really strong uptake of a long turn downcycler, forget the 12 years where the board just drove the SP down ... and turn the one (and so far only) biggie into a sales argument?

Anybody noticed that they only brought the SP back to where it was in 2013 - any chair useful any of the money (s)he gets would have noticed that.

Just wondering whether the chair picked as well the 5 and 10 years annual returns to holders? Interesting as well why (s)he didn't pick the returns ending in 2022 / 2023?

I would say this is as stupid as selling preloved cars, but unfortunately - the used car salespeople have here in NZ much better boards and amangement than Fonterra seems to have ...

BTW: milk prices dropping ...

You cannot view this attachment.

I guess if you want to go back a decade to create an argument not to buy a stock now, then you might as well not buy anything at all. All stocks have their ups and downs, all you can do is look at the company now and what its prospects are going forward. Fonterra are in very good shape right now and I'm reasonably confident - or as confident as one can be - of their prospects post-divestment.
 
Milk prices affect the farmer much more than Fonterra who simply process the product and add their premium. If milk prices are down then Fonterra simply pays less at the gate.