FSF - Fonterra Shareholders Fund

[Basil]

Correct, A cyclical commodity company with cyclical margins selling off what is arguably the best part of the business. All this with non farmer shareholder rights subordinated to farmers.  Well done to those who bought on the cheap. It's not cheap now. That's all I have to say on this one.

[mike2023]

Food service was always a drag. It's been discussed for a decade at farmer meetings. The challenge was just how to separate it out.

[Tim nice but dim]

Yes, we all know what was done in the past, and it is likely that shareholders and unit holders will continue to be treated the same. But we also know that unit holders have no legal or voting rights so we are dependent on what is voted upon in the shareholders meeting. That, in my mind at least, creates a shadow of uncertainty.
It is highly unlikely that unit holders will be treated differently but it would be nice to see that spelt out in writing at some point.

https://api.nzx.com/public/announcement/459423/attachment/452896/459423-452896.pdf

P30 of annual report

"Fonterra is targeting a tax free capital return of $2.00 per share to shareholders & unit holders"

[LoungeLizard]

https://api.nzx.com/public/announcement/459423/attachment/452896/459423-452896.pdf

P30 of annual report

"Fonterra is targeting a tax free capital return of $2.00 per share to shareholders & unit holders"

Thanks for that - missed it entirely!

[Left Field]

Useful background article to the forthcoming vote on the proposed Mainland divestment....

https://www.odt.co.nz/business/fonterra's-sale-mainland-hinges-special-vote

[Tim nice but dim]

These metrics look sort of okay to me but I can't shake my sense that this is a cyclical commodity company trading at the top of the cycle in which case they should be trading on lower metrics.

I acquired these quite some time ago I have enjoyed stellar returns to date. I now think I should be fear full as others are being very greedy.

I am trying to understand "this is a cyclical commodity company trading at the top of the cycle" & have obtained data on WMP below but it does not show the cyclical nature mentioned above, nor does it correspond to the historical FSF share price.

Any advise for where else I should look?


https://figure.nz/chart/JKLzuIDVRXN52MXh-CZvNsxt7sXsDiHil

[Otago K]

I acquired these quite some time ago I have enjoyed stellar returns to date. I now think I should be fear full as others are being very greedy.

I am trying to understand "this is a cyclical commodity company trading at the top of the cycle" & have obtained data on WMP below but it does not show the cyclical nature mentioned above, nor does it correspond to the historical FSF share price.

Any advise for where else I should look?


https://figure.nz/chart/JKLzuIDVRXN52MXh-CZvNsxt7sXsDiHil

Well done, on your success with FSF.
Certainly going forward Fonterra is going more down the commodity line of business.
My logic without the brands business is it maybe more as return to the past for determination of the dividend payment. If the milk price they are paying the farmers ends up too high, or close to break even for the operations then the dividend drops. Early in the supply season but quite high payout to historical levels and suspect they may be reluctant to cut it, if the ongoing global dairy auctions are high then many countries have capacity to eek a bit more production, NZ a small % of global dairy production but a much higher % of dairy global trade, the one large market China maybe adds to risk.

I too am a long term investor and am very content with FSF as an investment, but logically would want to consider how much I hold in my portfolio based around how many $ I have put in, and if I might not prefer to move some funds into alternative stocks or investments maybe now is the optune time. Do think FSF will go up and down over the next few years, suspect some have thoughts the $2 payback is worth a bit more than I do. Discl still have a standard sort of portfolio % at current SP $ holding in some portfolio entities but not overweight at all.I may be just spooked some but what helps one sleep isn't to be ignored, feel some alternatives and suspect there will come a day in the next 24 months that I might BUY back some.

[Tim nice but dim]

Well done, on your success with FSF.
Certainly going forward Fonterra is going more down the commodity line of business.
My logic without the brands business is it maybe more as return to the past for determination of the dividend payment. If the milk price they are paying the farmers ends up too high, or close to break even for the operations then the dividend drops. Early in the supply season but quite high payout to historical levels and suspect they may be reluctant to cut it, if the ongoing global dairy auctions are high then many countries have capacity to eek a bit more production, NZ a small % of global dairy production but a much higher % of dairy global trade, the one large market China maybe adds to risk.

I too am a long term investor and am very content with FSF as an investment, but logically would want to consider how much I hold in my portfolio based around how many $ I have put in, and if I might not prefer to move some funds into alternative stocks or investments maybe now is the optune time. Do think FSF will go up and down over the next few years, suspect some have thoughts the $2 payback is worth a bit more than I do. Discl still have a standard sort of portfolio % at current SP $ holding in some portfolio entities but not overweight at all.I may be just spooked some but what helps one sleep isn't to be ignored, feel some alternatives and suspect there will come a day in the next 24 months that I might BUY back some.

Thanks for the advise, much appeciated.

I have looked at the historical Farmgate milk price, shows a gradual increase from 17-18 with a high price outlier in 21-22. Does not appear to me to be effecting EPS significantly.

Too many factors in play to make any accurate prediction for FY 2026 dividend, perhaps a net yield of 7.5% (assuming the share price reduces $2 after capital return). I shall evaluate after interum results announced in early 2026. This would be a good time for me to determine my future holding intentions.

I would still like to hear from anyone with any additional info to support "cyclical commodity nature" of this business.

[LoungeLizard]

https://www.nzx.com/announcements/459632

Good information booklet on the likely effect (and risk) of the divestment process. Encouraging to read that Management predicts "Earnings to be back at FY25 levels within three years, offsetting the earnings impact of divestment." That seems to have gone down well with analysts who have "lifted their 12-month target price on units in the Fonterra Shareholders' Fund" according to BusinessDesk this morning.

[Hectorplains]

I would still like to hear from anyone with any additional info to support "cyclical commodity nature" of this business.

Here is is from the ...ummm....the horse's mouth, "Dairy farming is very cyclical."
https://www.rnz.co.nz/news/business/574155/latest-farmgate-milk-payout-may-be-new-norm-says-federated-farmers-boss

 

[Hectorplains]

And here: https://kpmg.com/nz/en/home/insights/2023/09/volatility-in-dairy-payouts.html  "The dairy industry is no stranger to volatility." 

Check out the groovy graph

[Tim nice but dim]

And here: https://kpmg.com/nz/en/home/insights/2023/09/volatility-in-dairy-payouts.html  "The dairy industry is no stranger to volatility." 

Check out the groovy graph

Many thanks for your help, I really appreciate your efforts. I only went back to 2018, not far enough it seems.

If there is that much volatility in milk price then that will have down stream effects on other reported figures. I have my answer & shall proceed with caution.

[seaweed]

Yes, looking good, but looks like the cat is out of the bag. I didn't quite get to my target, but am happy with what I got and picked up an extra 4000 on open for $7.50. Might pick up another lot if price comes back this afternoon. I think this is called greed.  

That was written on 24/9/25. Am happy with my holding it appears to be $90,000+ in the green but may pull back a bit tomorrow being ex div day. It was scary buying in as a Johny come lately at the giddy heights of $6 to $7.50 range.

[LoungeLizard]

That was written on 24/9/25. Am happy with my holding it appears to be $90,000+ in the green but may pull back a bit tomorrow being ex div day. It was scary buying in as a Johny come lately at the giddy heights of $6 to $7.50 range.

Congrats Seaweed - fortune favours the brave! (sometimes). I wish I'd bought more back in May last year, when they first announced the new business separation/divestment strategy. Ended up with 20k parcel at $3.70-$3.80. Very much a conviction buy/hold that the P/E mathematicians would never bother with and hence flew under the radar for a long time.

Nice surge in the SP today which should mean that the SP will settle around $7.90-$8 tomorrow ex-dividend. That's still well north of where it was only a few weeks ago. The next bump will be on 30/10 when/if (probably when) the divestment plan is ratified. What the prospect of $2 per share tax-free cash return will do to the SP is anyone's guess.

[Left Field]

Well done LL & Seaweed.... fortune favours the brave indeed. Great times for holders.