Australia | Jul 24 2006
By Rudi Filapek-Vandyck
Analysts at Credit Suisse believe they have discovered some bad news patches in the Goodman Fielder (GFF) growth story. They have downgraded their recommendation to Neutral and cut their twelve month target to $2.40 from $2.50.
Earnings estimates have been scaled back as well, of course. Post the cut in future estimates, the analysts believe there is further 5% risk to their EPS forecasts due to potential impact from currencies and commodities.
Credit Suisse believes Goodman Fielder is likely to lose its only NZ milk house-brand contract. This could be worth A$8m of EBITDA risk in FY07, the analysts believe. They have taken the contract out of their future earnings forecasts already.
Credit Suisse says Fonterra, the company’s main milk competitor in NZ, is believed to have lost the Progressive Enterprise Limited contract, resulting in the upscaling of a second tier milk player. This is usually seen as a negative development for the incumbents.
Also, the analysts believe Cargill may integrate upstream and thus start to compete with Goodman Fielder in commercial oils. The analysts estimate this will put A$10m EBITDA at risk between FY08-FY09.
However, even with commodity risk factored in, the analysts estimate the stock is trading on a PE of 13.0x FY07 and a dividend yield over 6.0%. Regardless of all the negative developments that may lie ahead, Credit Suisse analysts maintain the view that Goodman Fielder shares are valued inexpensively with near-term growth seen between 20%-23%.