Fosters (FGL) Update

Submitted by Craig Strzelecki on 14 September, 2007 - 11:51

Fosters (FGL) has a reiterated Outperform recommendation and a share price target of $6.92 from Australian sharemarket analyst Macquarie Research Equities. The analysts were excited by their report last month and believe the stock is well placed to deliver on their growth expectations of 12% EPS growth in 2008, followed by 7.9% in 2009. FY07 result shows wine momentum building. Reconciling FGL’s FY07 result is like putting together a jigsaw – thanks to significant items, discontinued businesses, SGARA and a regional and product-based segment reporting matrix. However, when you do get all the pieces into place the picture is encouraging. Particularly the accelerating volume and revenue growth reported by the wine division – and associated EBITS margin expansion. FY08 guidance particularly vague – with the only numbers in the FY07 result outlook comments being dates. Management did provide some general expectations for underlying business performance – in constant currency terms. It was suggested that revenue growth will be driven by price and mix, margin expansion will be driven by this revenue growth and cost savings, and EPS growth will be boosted by buybacks. Cash conversion is forecast to ‘remain strong’, while ROCE will improve. While management's comments are encouraging, translating this into hard numbers is what it's all about. The analysts have scrutinised and subsequently tweaked their assumptions, with detailed forecasts for FY08 by region. Despite the headwinds of a stronger AUD and small Australian vintage 2007, They remain confident that FGL can deliver 5.6% (A$65m) continuing business EBITS growth in FY08. They expect this to be underwritten by the Australian beer business, which they forecast to deliver 59% of the groups growth (+$38m, or 5.3% divisional EBIT growth), driven by price realisation, VB mid and VB duty savings. They expect AAP wine to deliver 35% of group growth (+$23m, or +16% divisional EBITSgrowth) driven by price realisation and synergies. They expect the America's region to deliver just 3.7% AUD FY08 EBITS growth (+$9m), with +13% growth in USD terms diluted by the stronger AUD. And after a remarkably strong FY07, we forecast the EMEA region to report a 6% EBIT decline in FY08 (-$4m), or a 1.4% EBIT decline in GBP terms. Their adjusted FY08 NPAT target is $751m – growth of 9.1% on FY07 NPAT (pre ISIs, post SGARA). MRE’s adjusted EPS growth forecast is 12.4%, thanks to a ~3% reduction in EFPOWA from the FY07 and FY08E buybacks. FY08 EPS forecast represents 8% growth on FY07 EPS pre SGARA and ISIs (35.6cps). The analysts are encouraged by the operational improvements evident in FGL's wine division. And while environmental challenges remain (vintage, AUD). Read a previous Fosters (FGL) stock recommendation.

Fosters Group Limited is listed on the Australian Stock Exchange (ASX) under stock code FGL. You can view their investor website here. FGL was listed on the ASX on 4 February, 1982. Foster's Group is a premium global multi-beverage company delivering a total portfolio of beer, wine, spirits, cider and non-alcohol beverages. The company is involved in the production and marketing of alcoholic and non-alcoholic beverages and a major investment in licensed properties. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade FGL. Check your charts and good luck with your share trading!

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