Australia (ASX) & New Zealand (NZX) Market Movers – 6th June – Stock in Focus: Fonterra

Australia and New Zealand Market Movers is provided by: Australasian Trading Management.

The Australian share market was lower on Tuesday (ASX 200 index -0.51%) as the market index once again dropped below the 6000 level. Shares shrugged off upbeat economic data to slide as miners and energy names tumbled on the back of easing oil and iron ore prices. On the flipside, Commonwealth Bank rallied for a second day following the announcement of its record $700 million penalty on Monday, helping limit losses for equities overall.

The New Zealand market rallied yesterday (NZX 50 index +1.40%) led by gains across market heavyweights A2 Milk, Fisher & Paykel Healthcare and Sky Network Television. In stock news, Cavalier jumped +13% after the carpet maker forecast annual profit of $3.7 million to $4 million. This was a significant improvement on the loss experienced last year, driven by improved margins following the carpetmaker’s restructuring and the benefits of more favourable wool prices.

Global markets were mixed overnight as European shares slipped while Wall Street traded higher with Technology stocks hitting new highs.

Stocks appear to be trading in a range as investors digest macroeconomic news from Italian elections to trade tariffs, while the fundamentals around the economy and company profits remain solid. On the trade front, overnight Mexico imposed tariffs on American products ranging from steel to pork and bourbon in response to President Donald Trump’s metals tariffs.

Closer to home, the Reserve Bank of Australia (RBA) left the official cash rate unchanged at 1.50% for a record 20th meeting and will likely be on hold for the remainder of the year. While the next move is most probably higher for rates, the RBA cited a slide in the property markets (in Sydney & Melbourne) and that inflation remains below its target level. In terms of the currency, the RBA noted that “on a trade-weighted basis, the Australian dollar remains within the range that it has been in over the past two years” and the Aussie dollar was little changed post the announcement.

Stock in Focus: Fonterra (FSF:NZ / FSF:AX)

Fonterra shares have dropped sharply after the dairy giant raised its forecast farmgate milk price for the 2018 and 2019 seasons, while at the same time cutting its projected dividends for 2018 approximately in half – citing that rising global dairy prices are squeezing margins.

Fonterra raised its forecast milk price for the current season by 20 cents to $6.75 per kilogram of milk solids and gave an opening price forecast for 2019 of $7/kgMS, but cut its forecast dividend range for the current year to a range of 15-20 cents a share, from a previous forecast of 25-35 cents. The news was not shareholder friendly, as the dividend being cut in half comes at the detriment of non-farmer shareholders (Fonterra farmer shareholders receive both the dividend and milk price pay-out).

Fonterra has had a tough time of late and has struggled to deliver. Notable recent negative news stories have been the settlement with Danone for the whey protein recall, as well as the write-down of their Beingmate (Chinese infant formula) investment. To add to these issues, milk prices have not been moving in a favourable manner for Fonterra, although we would note there was a -1.3% drop in the latest dairy price auction overnight.
3 Things Markets Will be Watching this Week

1.   The price of oil as it continues to retrace from recent highs.

2.   The Reserve Bank of Australia makes an interest rate decision on Tuesday.

3.   Australian economic growth (GDP) data is published on Wednesday.

Australia and New Zealand Market Movers is provided by Australasian Trading Management. ATM is an independent research house covering stock analysis across major markets including the ASX, NZX and US markets. We make our research easy to understand and concise, taking complex issues and simplifying them so that you can make informed and accurate decisions. We have no conflicts of interest and our only goal is to generate positive returns for our members. We run transparent model portfolios to track performance and invest where we see the most value, in companies of all sizes across all industries, and often in smaller companies.

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Categories: Australian Stocks, New Zealand Stocks

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