Goodman Fielder Update

Submitted by Craig Strzelecki on 24 May, 2007 - 19:45

Goodman Fielder has a Neutral 1 broker call and a share price target of $2.59 from stockmarket analyst UBS. NZ milk headwinds: Rising raw milk prices could hurt GFF's margins: Fonterra announced a 27% increase in raw milk prices from Oct 07. Goodman Fielder suggests price recovery is easier when costs move significantly & suddenly rather than slightly & slowly and it has been successful recovering wheat cost pressures in 07. However obstacles with NZ milk pricing include a 3rd entrant; WOW is discounting to take share from route; & Fonterra is enjoying a gain from exports. The analysts met Goodman Fielder's new CFO this week & heard about other recent senior appointments that upgrade management capability. Baking & Home Ingredients are performing solidly but Oils' competitive threat still exists & NZ category management issues may take time to turnaround. Awaiting FY 08 guidance: NZ milk is 10-15% of EBITDA (UBSe) with potential downside risk. However their estimates are unchanged since their (in their view, cautious) FY 08 NPAT estimate of $225m assumes no growth on 07 prospectus of $224m. They await FY 08 guidance with 28 Aug results. The analysts maintain their N1 rating but raise our price target slightly to $2.59 (from $2.52) as our DCF rolls forward. Stock is on what they consider to be an undemanding 14.7x 08E PE & 9.7x 08E EV/EBITDA with 5.2% dividend yield. Valuation reflects low growth prospects, retailer power, private label threats & commodity cost pressures; none of which are easing.

Goodman Fielder Limited is listed on the Australian Stock Exchange (ASX) under stock code GFF. You can view their investor website here. GFF was listed on the ASX on 19 December, 2005. Max Ould is the chairman for Goodman Fielder and the Managing Director is Peter Margin. Goodman Fielder manufactures and supplies various consumer food products, including baking, spreads & oils, edible fats and dairy goods. The company owns a host of iconic brands that generations of Australians and New Zealanders have grown up with and put in their supermarket trolleys every week.Their brands include Meadow Lea, Praise, White Wings, Pampas, Mighty Soft, Helga's, Wonder White, Vogel's (under licence), Meadow Fresh, and Irvines. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade GFF. Check your charts and good luck with your share trading!

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