A Look at NZ Dairy Sector and Key Stocks

  • Jun 26, 2020 NZST
  • Team Kalkine
A Look at NZ Dairy Sector and Key Stocks

Summary

  • Dairy exports up by $519 million from 25 March to 3 June
  • Australia, EU, and US showed decent growth in milk production
  • ATM anticipates EBITDA margin to be in the range of 29%-30% for the full year.

The dairy industry is one of the key industries in New Zealand and forms part of the broader primary industry. As per the provisional trade data published by Stats NZ, the dairy exports were strong in the period from 25 March 2020 to 3 June 2020. The dairy exports were up by $519 million as compared to the same time last year because of the strong prices aided by the falling New Zealand dollars.

Despite the decline in commodity prices, the dairy companies contracted a high proportion of the 2019/20 season’s milk supply and now they will be able to maintain current season milk prices at historically high levels, which will support on-farm profitability in the short term.

Weekly milk futures prices July 2019 to May 2020 (Source: MPI)

Let us have a look at few listed dairy stocks on NZX

Fonterra Co-operative Group Limited (NZX: FCG)

New Zealand Monthly Production Flat; Australia, EU, and US production Up

The milk production of New Zealand was relatively flat, down by 0.6% on a litres basis and down by 0.8% on milk solids basis in the month of April as compared to April last year. Dry conditions remained throughout most parts of New Zealand and impacted April milk production. The continuing lack of rain resulted in soils staying considerably drier than usual in most of the parts of the North Island.

Australia milk production rose by 7.1 per cent in the month of March as compared to the March last year. EU milk production rose by 0.9 per cent in the month of March compared to March last year.

US milk production increased by 1.5 per cent in April compared to the same period last year.

Key Data (Source: Company Reports)

Business performance

For the 9 months ended 30th April 2020, FCG reported normalised EBIT of $815 million, up by $301 million as compared to last year. The company’s business divisions have recorded a good performance, in spite of the negative impact of coronavirus. The ingredients segment recorded growth of 9 per cent in normalised EBIT and stood at $668 million, primarily led by improved margins.  

Consumer segment registered EBIT of $187 million, an increase of 46 per cent as compared to prior corresponding period. The growth was primarily due to cost savings across all regions and growth of gross margin in Asia.

Earning Guidance

In the release dated 21 May 2020, the company stated that, for the rest of FY20, the company anticipates underlying earnings in the range of 15-25 cents per share. Based on the first nine month’s performance, it anticipates its full year FY20 underlying earnings to be at the top half of the range. Nevertheless, there are substantial ambiguities in the last quarter like, timing of shipments, how swiftly the foodservice sector improves, and how the wider economic downturn would influence business.

Key Data (Source: Company Reports)

Stock Performance

The stock price of FCG closed the day’s trading at NZ$3.730 per share on 25th June 2020, down by 0.53% on an intraday basis. The company has a market capitalisation of around $6.01 billion. The stock has given a total return of ~3.88% in the time period of one month and has increased by 1.90% in the time period of three months.

The a2 Milk Company Limited (NZX: ATM)

The company has recently made an announcement that it entered into an exclusive licensing agreement with Agrifoods Cooperative for the distribution, production, marketing, as well as sale of the a2 Milk™ branded liquid milk for the market in Canada.

This agreement will give the company a capability to leverage the brand development work it has undertaken in North America and grow into the Canadian market with a well-recognized partner.

The company will offer Agrifoods with access to its IP as well as marketing assets and its proprietary systems and know-how associated to the processing and sourcing of a2 Milk™, and it will also work with Agrifoods and Canadian dairy farmers (local) to source milk locally.

The company expects continued strong growth in revenue throughout key regions supported by marketing investment in the USA and China as well as the continuing advancement of the organisational capability to help the execution of strategy.

As per the release, the company is uncertain about the potential impact to supply chains as well as demand from consumer in China due to the coronavirus pandemic and ATM has been assessing the situation. The company is anticipating EBITDA margin in the range of 29% to 30% for the full year.

Stock Performance

The stock of ATM closed the day’s trading at NZ$19.430 per share on 25th June 2020, up by 0.15% on an intraday basis. The company has a market capitalisation of around $14.37 billion and the stock’s 52-week high and low is $21.35 and $12.19, respectively. The stock has given a total return of 3.08% in the time period of one month and has increased 20.57% in the time period of three months.

 


Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

   
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