That is the main message from a study of the drivers of Fonterra’s share price by senior rural economist Con Williams, published in the June ANZ Agri-Focus.
Since the change in capital structure Fonterra’s share price has averaged $6.10 within a range of $4.60 to $8.08.
Earnings have averaged 37c a share, of which shareholders have received 30c and 7c has been retained.
The average cash yield for Fonterra shares has been 4.9%.
The drivers of share price included the company’s earning performance, general global dairy market conditions, general share market conditions, seasonal dynamics and some one-off events.
Some of the one-offs emerged from left field, such as this year’s Danone legal settlement and the writedown of the Beingmate investment.
Gross profit and earnings have shown almost no growth over the past six years, which is a concern considering the increase in invested core capital and numerous restructurings of various divisions and partnerships.
Williams said there are some signs of underlying improvement in certain areas but not nearly enough to meet the company’s 2025 ambition to lift normalised earnings by 50-100%.
There appears to be some seasonality in the inter-linked Fonterra Shareholders’ Fund (FSF) and Fonterra Co-operative Group (FCG) share prices.
On average there has been a 10% variation from peak around December and January to trough in June and July.
Among the likely explanations are the need for farmer-shareholders to meet the share standard on December 1, the payment dates for dividends and the settlement dates for farm and share transactions.
He said the complexity of Fonterra and the lack of transparency in the results of the individual business units and partnerships make it difficult to model year-to-year earnings with any confidence.
Fonterra still has an aspiration to increase earnings to 80c-$1 a share before retentions when its strategy has been executed but no time-frame was provided.
“This is in stark contrast to the 37c share performance since 2012 and the current season’s adjusted guidance of 25-30c.
“The key is to what extent the underlying trend can be built on in coming years.
“We do believe there is some underlying improvement starting to show through in certain areas but not nearly enough to deliver 80c-$1 any time soon.”
Williams picked out the improved Australian operations, rapid market share growth in China and other Asian markets for food service products, efficiency gains and lower costs and a scaling back of capital expenditure.
The change in capital structure in 2012 was expected to provide growing NZ milk supply, more food service investment, the China farms and selective partnerships in Asia to boost distribution and brands.
“Some of these initiatives have been executed, providing a small boost but achievements are still short of overall aspirations,” Williams said.
