Wall Street Free-falls | Fonterra Sells Tip Top

14 May 2019

Global markets​ fell sharply overnight reflecting the escalation in tit-for-tat tariff hikes by the US and China.

China announced retaliatory tariffs on $60 billion in US goods from June 1 in the latest escalation of the trade war between the two powers, sending investors fleeing equities for less risky assets. The tariffs took aim at US farmers, which make up a significant part of Trump's voter base, and it will be interesting to see how developments play out. ​​An all out trade war remains a key risk for markets at the current juncture. Not only could a trade war impact on global growth, but it increases the price of goods which is inflationary. 
 

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

​​​​​​​​​​​Fonterra Shareholders' Fund units ​were little changed as it ​announced the sale of its Tip Top ice cream business for $380 million, some $100 million above book value, while securing a supply agreement with the new owner. Fonterra​ said that​ ​as it ​has other one-off transactions that are underway but not yet completed, such as the potential sale of DFE Pharma, it is too early to assess the overall impact of the Co-op’s divestment programme on its ​20​19​ financial year​ earning​s. In saying that, at face value it looks like Fonterra received a decent price for the business.​

​We remain cautious on ​Fonterra ​ – which has failed to deliver on its promised “value-add” strategy to date.​ We do not believe they will be able to deliver a meaningful return to shareholders (adding to the inherent issues with the company’s structure). We will watch how its portfolio review & potential restructure plays out​ – (with the sale of Tip Top being part of this)​, as these changes will likely take a long time to implement and we are in no rush to buy FSF.
 
We currently have a HOLD recommendation on FSF.
Members should look out for a full update on FSF to be released in our weekly report.

 
Australia & New Zealand Market Movers

​​​​​​​​​​The Australian share market was lower on Monday (ASX 200 index -0.21%) due largely to losses in some financial sector heavyweights.
Commonwealth Bank fell on Monday after its quarterly earnings update disappointed the market. The bank said it had forgone $415 million in revenue after reducing or removing fees and introducing fee alerts to warn customers of overdrawn or credit card charges. On the flipside, Lendlease shares rose following reports the construction group was being targeted by an unidentifed major Japanese company. In a statement to the market, Lendlease denied the reports and said it had "not received any such approach".
 
 
The New Zealand market started the week in positive territory (NZX 50 index +0.27%) in light trading. In stock news, Trustpower hit a record high after declaring a special dividend of 15 cents per share. That takes the special returns to 40 cents since the sale of Green State Power in New South Wales to Meridian Energy last year. The company reported a 9 percent decline in annual operating earnings to $222 million, meeting expectations. Outside the benchmark, Evolve Education resumed trading after a deeply discounted entitlement offer raised $63.5 million.

 

3 Things Markets Will be Watching this Week

  1. ​ Mini reporting season across Australasia sees a number of Aussie & Kiwi stocks make earnings announcements.
  2. Trade War headlines between the US & China are likely to remain a feature this week.
  3. The latest Aussie employment data is released Thursday.​
     

Have a Great Day,
 

Team

Global markets​ fell sharply overnight reflecting the escalation in tit-for-tat tariff hikes by the US and China.

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