Podcast – Berkshire AGM | Another Fonterra Downgrade

7 June 2019

Global markets ​generally continued to trend higher overnight on optimism that the US might delay imposing tariffs on Mexico next week. Oil prices stabilised after falling to near five-month lows and into a bear market the previous session.​
​In the latest podcast, Jeremy provides analysis of Warren Buffett, Charlie Munger and the 2019 Berkshire Hathaway AGM.  
​To listen CLICK HERE​

Stock in Focus: Fonterra (FSF:NZX / FSF:ASX)

​​​​​​​​​​​​​​​Shares in dairy giant FSF continue to slide, reaching all times lows after further cutting earnings guidance for the 2019 financial year. ​We removed FSF from our model portfolio last year.​

Due to difficult trading conditions particularly in Australia and unfavourable pricing (weakening margins) Fonterra announced a further downgrade to its earnings forecast for the 2019 financial year down to 10 to 15 cents per share, from its previous downgrade of 15-25 cents per share. Fonterra has narrowed its 2018/2019 forecast Farmgate milk price range from $6.30 – $6.60 per kgMS to $6.30 to $6.40 per kgMS. 

On a positive note, Fonterra remains on track with its goal to reduce debt by $800m by the end of the year as it continues to review its portfolio, selling non-core businesses. The recent sale of Tip Top for $380m ($100m above book value) helps in this regard and other businesses are up for review – such as Fonterra’s joint venture with Nestle in Brazil and two wholly-owned farm-hubs in China. 

We have lost confidence in the company due to their inability to execute on their strategy. We will continue to watch how its portfolio review & potential restructure plays out from the side lines. 
We currently have a HOLD recommendation on FSF.


Australia & New Zealand Market Movers

​​​​​​​​​​​​​​​​​​​​​​The Australian share market rallied on Thursday (ASX 200 index +0.39%) with modest gains across the board pushing the market higher for a third straight session.
Santos shares​ ​rose after announcing the Dorado oil and gas discovery off the coast of Western Australia was even bigger than expected, following its latest drilling result. The discovery had already been hyped as Australia’s most exciting oil find in decades. Wisetech Global shares rose​ to record highs after it said it expected earnings before interest, tax, depreciation and amortisation to be as much as 35 per cent higher in 2018-19 than the year before. The company also said revenue was expected to be 52 per cent higher in 2018-19 as it expanded into new products and geographies.

The New Zealand market made gains yesterday (NZX 50 index +0.31%) led by growth stocks Synlait Milk and Fisher & Paykel Healthcare. Honey producer Comvita soared on news its former chief executive will put its under-performing units under the microscope.

3 Things Markets Will be Watching this Week

  1. ​​​​    Trade War headlines are likely to dominate investor sentiment.
  2.     The Reserve Bank of Australia makes an interest rate decision on Tuesday.
  3.     Key US manufacturing & employment data is published this week.

Have a Great Day,


Global markets ​generally continued to trend higher overnight on optimism that the US might delay imposing tariffs on Mexico next week.

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