What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
Shareholders' council chairman James Barron says the half-year results delivered this month are pleasing.
Fonterra reported a half year net profit of $364 million and announced an interim dividend of 5 cents/share while maintaining a record high forecast milk price range of $9.30 to $9.90/kgMS and 25-35c range/share earnings for unit holders.
"Fonterra farmers want to see their co-op hitting its targets and it's great to see Miles Hurrell and his team starting to make a habit of that," Barron says. "It's good to see the forecast farmgate milk price and normalised earnings per share ranges maintained, other results largely in line with expectations, debt continuing to decrease, no normalisations and a 5-cent interim dividend," he says.
Barron adds that as farmers owners they continue to see the benefits of joining together to form a co-operative of scale with a diverse range of products and markets.
"Management continues to fully utilise that scale and diversification by shifting milk into the markets, categories and product lines that are the most profitable in what continues to be a challenging environment."
Barron notes that the forecast milk price is good news for farmers and the wider New Zealand economy.
"Farmers, like all New Zealand business owners, are facing high inflationary pressures," he adds. "The high export earnings from our milk mean that this year the co-op anticipates injecting over $14 billion into our local communities through milk price payments alone."
However, the high milk price eroded margins for Fonterra's food service and consumer businesses globally.
Fonterra chief executive Miles Hurrell says the co-op earnings have been achieved at a time when input costs have been significantly higher with the average cost of milk up almost 30% on the same time last year.
"This shows we're performing well even with a high farmgate milk price," he adds. "The board's decision to pay an interim dividend will be welcome news for our unit holders and farmer owners."
Wealth management and investment consultant Jarden expects Fonterra to deliver total earnings of 33c/share this financial year.
Jarden Head of Research Arie Dekker notes that this would be a good result against the backdrop of record high milk prices.
"Not surprisingly, margins in Foodservice and Consumer are well down but Ingredients has performed well and, critically, the outlook for non-reference product pricing in second half is good with them keeping up with the strong performing whole milk powder," Dekker says.
Fonterra also remains on track to distribute $1 billion to shareholders and unit holders by 2024.
It plans to divest overseas businesses like Soprole in Chile and review the ownership structure of its Australian business.
Dekker notes that while no meaningful update on divestments was made this month, the market is encouraged by the strong results in the half from both Chile and Australia.
