Units in 'overvalued' Fonterra fund take a tumble

Fonterra shareholder fund units dropped by more than 1% today as it joined the NZX50 and a research firm says the units are overvalued.

The dairy giant's fund – the first chance for non-dairy investors to get a slice of the New Zealand industry – has surged above its $5.50 offer price since listing in late November.

The fund (NZX: FSF) displaced Cavalier Corporation on the NZX50 today but by mid-afternoon had dropped 8 cents to $7.26.

Before the bookbuild, Morningstar Research warned of uncertainties with investing in the Fonterra units and said fair value was $5.50.

A fresh report, released this morning, reiterated that line – despite the units appreciating more than 30% since trading began less than two months ago.

The Morningstar report says the majority of Fonterra's returns relies on commodity products such as milk powder, which generates mid-single digit operating margins and has "no pricing power".

Fonterra will struggle to lift returns in higher-margin branded goods, the note says, because of competition from established multinationals Nestle and Danone.

"We believe the company is overvalued compared to our intrinsic value of $5.50 per unit."

Fonterra – the world's biggest dairy exporter – faces increasing competition in New Zealand, with two Chinese dairy companies announcing investments of $420 million in recent months.

dwilliams@nbr.co.nz


Got a question about this story? Leave it in Comments & Questions below.


This article is tagged with the following keywords. Find out more about MyNBR Tags

NZ Market Snapshot

Forex

Sym Price Change
USD 0.7327 0.0000 0.00%
AUD 0.9211 0.0000 0.00%
EUR 0.6140 0.0000 0.00%
GBP 0.5434 0.0000 0.00%
HKD 5.7285 0.0000 0.00%
JPY 82.1000 0.0000 0.00%

Commods

Commodity Price Change Time
Gold Index 1293.3 6.130 2017-09-22T00:
Oil Brent 56.4 0.420 2017-09-22T00:
Oil Nymex 50.7 0.110 2017-09-22T00:
Silver Index 16.9 -0.034 2017-09-22T00:

Indices

Symbol Open High Last %
NZX 50 7795.4 7814.8 7795.4 0.25%
NASDAQ 6401.4 6429.5 6422.7 0.07%
DAX 12569.7 12646.6 12600.0 -0.06%
DJI 22334.1 22364.3 22359.2 -0.04%
FTSE 7263.9 7320.3 7263.9 0.64%
HKSE 27949.8 27960.9 28110.3 -0.82%
NI225 20413.6 20417.1 20347.5 -0.25%
ASX 5655.4 5688.2 5655.4 0.47%