This report is the updated version of the report uploaded on 22 May 2024 at 5:57 PM (GMT +13)

Fonterra Co-Operative Group Limited

FCG Details

Financial Results

• FCG released its FY 2024 interim results and its reported profit after tax of $674 Mn was up $128 Mn on the YoY basis, and EBIT from continuing operations increased 14% to $986 Mn over the same period.
• The Co-op reported return on capital for the last 12 months of 13.4%, reflecting a rise from 8.6% on the YoY basis, and earnings per share of 40 cents, up from 33 cents.
• The FY 2024 earnings were driven by increased margins and sales volumes in FCG’s Foodservice and Consumer channels, which supported to offset lower returns in the Ingredients channel following historically high price relativities last year.

Key Update

FCG announced that Global Markets CEO Judith Swales has decided to leave the Co-op.

Outlook

FCG announced the step-change in its strategic direction, as it commits to deepening the position as a world-leading provider of high-value, innovative dairy ingredients. The Co-op announced it is exploring full or partial divestment options for some or all of the global Consumer business, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.

Key Risks

The uncertainty in the global growth prospects, volatility in the market, inflationary concerns, geopolitical tensions, etc. are some of the risks FCG faces.

Stock Recommendation

Over the last three months, the stock has given a return of ~41.1%. The stock has made a 52-week low and high of NZD 2.03 and NZD 3.321, respectively. The company’s business activities are exposed to the risks such as global slowdown as well as geopolitical tensions.  

Also, the current global economic uncertainty, exacerbated by geopolitical conflicts, could impact the costs like energy and feed, influencing milk supply in the EU and US. The environmental regulations could also further impact milk production, mainly in the EU.

Therefore, investors should exit the stock.

Hence, a ‘Sell’ rating has been provided on the stock at the current price of NZD 3.15 per share (New Zealand Time : 12:50 PM (GMT +13)) as on 22^nd May 2024.

Technical Overview:

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for share price chart and stock valuation is based on May 22, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.