FSF - Fonterra Shareholders Fund

[BlackPeter]

I guess if you want to go back a decade to create an argument not to buy 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.

I choose the whole time FSF is existing. Not an unreasonable expectation, isn't it?

... and yes, apart from some short term gains for traders, Fonterra is now roughly where they were in 2013. Basically since starting FSF, shareholders could mainly worry about the size of their losses - and FSF's structure:
provide money for Fonterra without controlling the directors - has certainly helped to mitigate the return for shareholders.

But hey- everybody is welcome to invest wherever they want ... if its FSF interesting you, invest into them whatever you like.

Ah yes, and if milk prices go down farmers do something different. We had over the last years plenty of beef around mid Canterbury. For some reason at the moment its again more sheep. Do you know how this is impacting on Fonterras income? Its not hard to predict, but hey - you will notice over time anyway.

[Habitz]

BP is green cross fan boy, he'd rather you buy chemicals from GXH to pump into your blood stream than you have Fonterra's natural proteins and compounds.

[LoungeLizard]

I choose the whole time FSF is existing. Not an unreasonable expectation, isn't it?

... and yes, apart from some short term gains for traders, Fonterra is now roughly where they were in 2013. Basically since starting FSF, shareholders could mainly worry about the size of their losses - and FSF's structure:
provide money for Fonterra without controlling the directors - has certainly helped to mitigate the return for shareholders.

But hey- everybody is welcome to invest wherever they want ... if its FSF interesting you, invest into them whatever you like.

Ah yes, and if milk prices go down farmers do something different. We had over the last years plenty of beef around mid Canterbury. For some reason at the moment its again more sheep. Do you know how this is impacting on Fonterras income? Its not hard to predict, but hey - you will notice over time anyway.

I found the 68% gain over the last 12 months quite interesting for sure...

[Basil]

With the other Fonterra shares that only farmers can own trading just under $6 I feel caution may be warranted here.

Who knows this cyclical industry best, retail investors or dairy farmers ?

It seems to me farmers are taking Fonterra's goals of returning EPS back to current levels within 3 years after the sale of the foods division with a grain of salt so maybe retail investors should too ?

[Left Field]

It seems to me farmers are taking Fonterra's goals of returning EPS back to current levels within 3 years after the sale of the foods division with a grain of salt so maybe retail investors should too ?

Ha! ..... it'll probably reach the desired level in half that time.... 

[Otago K]

.....................
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.

Indeed, but perhaps it was not meant to be a comment on the farmgate supply price, so much as to the overall dropping level trend in the global dairy auction prices.

Think we need to pay heed to the fact that Fonterra is in effect a farmer supplier co-op, that will have the board in the main focused to their owner's FCG shareholder interests . FSF is a bit of a adjunct symbiotic entity. and I suspect that if a year comes when at nearing year balance up of the ins and outs come up short for Fonterra, the maintaining of a consistent dividend might not that high of a priority or possibly even an option.

I personally gave up trying to model towards a prediction of Fonterra dividends long ago, but in simple terms seeing a trend of declining farmgate supply prices for the next few months might be reflective of elements that would predict a lower dividend payout level.
 I think of Fonterra as a price taker, also has the likes of exchange rate impacts to hedge or not.

discl: Overweight FSF holder across portfolios at current SP, but well free carried having bought around the $3 mark, and having sold down somewhat a few months ago.

I can not agree that FSF is a risk free great upside investment at current levels, but would be happy to be wrong, maybe I'm cynical but when everyone else is saying today what you thought yesterday, maybe it is time to switch from HOLD to SELL somemore.

[Otago K]

With the other Fonterra shares that only farmers can own trading just under $6 I feel caution may be warranted here.

Who knows this cyclical industry best, retail investors or dairy farmers ?

It seems to me farmers are taking Fonterra's goals of returning EPS back to current levels within 3 years after the sale of the foods division with a grain of salt so maybe retail investors should too ?

Sorry Basil, in regards to the FCG SP drivers I'd predict the dividend yield would not be a factor for many holders, that said I do see currently 11.5% holdings are likes of retired within ten years farmer shareholders, so there will be some impact.
I think the demand side would be really driven by the need for farmer shareholding level requirement of their own milk supply level, and how Fonterra is pricing any issues and buy backs of FCG shares.

Anecdotally the word in the milking shed might be cynical with some folk but perhaps pragmatism is high in who I might chat with, and it would be fair to say there would seem to be a skepticism about what is mere speak and what will come to be real in this regard. Decades of family memory into that mindset??

[LoungeLizard]

Indeed, but perhaps it was not meant to be a comment on the farmgate supply price, so much as to the overall dropping level trend in the global dairy auction prices.

Think we need to pay heed to the fact that Fonterra is in effect a farmer supplier co-op, that will have the board in the main focused to their owner's FCG shareholder interests . FSF is a bit of a adjunct symbiotic entity. and I suspect that if a year comes when at nearing year balance up of the ins and outs come up short for Fonterra, the maintaining of a consistent dividend might not that high of a priority or possibly even an option.

I personally gave up trying to model towards a prediction of Fonterra dividends long ago, but in simple terms seeing a trend of declining farmgate supply prices for the next few months might be reflective of elements that would predict a lower dividend payout level.
 I think of Fonterra as a price taker, also has the likes of exchange rate impacts to hedge or not.

discl: Overweight FSF holder across portfolios at current SP, but well free carried having bought around the $3 mark, and having sold down somewhat a few months ago.

I can not agree that FSF is a risk free great upside investment at current levels, but would be happy to be wrong, maybe I'm cynical but when everyone else is saying today what you thought yesterday, maybe it is time to switch from HOLD to SELL somemore.

Good comments and fair to say that Fonterra has a chequered history regarding the shareholders fund - which is why I didn't buy until it seemed to have sorted itself out and started paying good dividends. Will that continue to happen? Fonterra seem committed to the fund but I can also see a point where they might decided to close it down (and pay out at a fair price). Being a conservative investor I see more of an upside with the fund given that, ups and downs in prices notwithstanding, people still buy milk through thick and thin.
It's from 2022 but I thought retiring Chair John Shewan's comments was a fair and very honest assessment of the funds poor performance to that date but also it's potential for progress ahead:

https://www.fonterra.com/content/dam/fonterra-public-website/fonterra-new-zealand/documents/pdf/fsf/Fonterra_Shareholders_Fund_reflections_on_10_years_in_the_chair.pdf

[Habitz]

With the other Fonterra shares that only farmers can own trading just under $6 I feel caution may be warranted here.

Who knows this cyclical industry best, retail investors or dairy farmers ?

It seems to me farmers are taking Fonterra's goals of returning EPS back to current levels within 3 years after the sale of the foods division with a grain of salt so maybe retail investors should too ?

Short answer, that FCG are not at market. Plenty of reasons for that, such as dairy farmers not having to hold 1:1, only 1:3. Average age for a dairy farm owner is 60 plus, and still rising. If the kids inherit the shares the first thing they ask is about selling them, not how much is the yield, and that was when the SP was half what it is now.

[Basil]

Thanks, appreciate people sharing their point of view.  I'm sure we've all witnessed the pretty serious reductions in the global dairy auction prices for what is it now, 9 auctions in a row ?  If the size of the overall pie gets smaller, I'm skeptical the dividend part to shareholders stays the same just as I am skeptical Fonterra with their badly chequered track record can somehow magically conjure up extra earnings to replace those lost by the sale of the foods division.

The whole opaque nature of the interplay between what dairy farmers are paid and what shareholders are paid is something I also find most unsatisfactory from an investment point of view.  Who are the board really acting for, shareholder suppliers or other investors ?    Happy to leave this one to others.

[Habitz]

"The whole opaque nature of the interplay between what dairy farmers are paid and what shareholders are paid is something I also find most unsatisfactory from an investment point of view.  Who are the board really acting for, shareholder suppliers or other investors ?    Happy to leave this one to others."

The pricing calculations are prescriptive, and you can look them up if interested. I don't think that any adhoc decisions or splits would be accepted by the nzx or anyone else.

[mike2023]

True. What used to happen was a low dividend when the milk price was high. And vice versa. Higher input costs squeezing margin.

[Tim nice but dim]

I have read a lot about how this share will  be effected in future & have considered each point carefully, now opinions.

1) Price FCG vs FSF

There is a significant differenence in the two share prices, is this of concern? - NO.

If you go back to the words of Ben Graham you should not concern yourself with the price Mr Market puts on a share & this should not effect your value from your own research. Clearly there are 2 Mr Markets here FCG & FSF, both groups have different business objectives. You should not let this influence your decisions.

2) Whole Milk Powder Price (WMPP)

This is a highly volatile index that is the key driver for FSF revenues
e. Is this of concern? - YES

The two graphs below show global price for last 5 years & last 12 months. This index will clearly effect EPS, I would expect by direct collelation.

Current finacial year shows a significant reduction in earning potential.

You cannot view this attachment.

You cannot view this attachment.

3) Farm Gate Milk Price (FGMP)

Has been mentioned repeatedly in this forum FGMP is a significant cost to the business, this is true, however it is generallly accepted that FGMP is highly correclated to WMPP, I not going to prove this here. So when WMPP falls FGMP will fall proportionatly. We are currently seeing fall in both measures.

Is this cause for concern - NO as this has been accounted for in 2).

4) Years Of Historical Earnings

I am not considering the years prior to FSF returning dividends to shareholders in 2022. The company before that time was heavily involved in overseas business that has since been closed or sold those activities, ie not the B2B model that has been sold by the board lately, those times are over for FSF & we should not compare the performance of the previous business model.

5) The future (my predictions only)

The reduction in WMPP will reduce EPS & FGMP in the short to medium term.
EPS for the next year will not meet predictions for current operations. In the past we have seen very conservative predictions for forecast EPS, I believe this year the forecast was not conservative as they were trying to sell the Mainland Sale to shareholders (& they succeeded).
The ongoing dividend will therefor be reduced compared to the last 2 years.
If the above points are are shown in future FSF reports to be correct we should see the share price after the Mainland capital return reducing by more than $2/share.

Well that my 2 cents worth, I'm sure this will not go down well with everyone.

Have a great Christmas.

 

[Habitz]

"The ongoing dividend will therefor be reduced compared to the last 2 years. If the above points are shown in future FSF reports to be correct we should see the share price after the Mainland capital return reducing by more than $2/share."

Good summary but you didn't give a forecast for what you think future dividends will be and therefore yield based on SP

[Otago K]

........
Good summary but you didn't give a forecast for what you think future dividends will be and therefore yield based on SP

To be fair and honest there is a complex set of factors or say levers that maybe will come into play so I would suggest a prediction of future dividends is very much a moving target.

I speculate Tim has perhaps a more balanced outlook to what he had previously, perhaps he is ready to take some profits, personally I have said my bit on the thought that it's not a one way bet as Mr Market might be seeing it at present. There will be periods here the yields are looking large but suspect there are down years yet to endure, perhaps they will amount to times for buying opportunities to be had.