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MG In Danger Of Missing Its Profit Forecast From Its Prospectus
February 5, 2016

Murray Goulburn is in danger of missing its profit forecast from its prospectus after further erosion in global dairy prices.  Australia’s biggest milk processor, which won the contract to supply Coles with its home brand cheese this week, had hoped global dairy prices would recover in the second half of FY16 to keep the price it pays farmers for their milk above $6 a kilogram.

But that looks unlikely after the GlobalDairyTrade Index shed another 7.4 per cent on Tuesday, extending its losses since October to 21 per cent.  Units in Murray Goulburn’s listed trust have shed 11.6 per cent in the past three days to $2.05 – 5¢ below their float price.

Managing director Gary Helou has told investors twice since August 2015 that if milk prices did not recover as the co-operative expected, net profit would fall from $86 million, as forecast in its prospectus, to between $66 million and $79 million.

Meanwhile the farm gate price, which is linked to its profit mechanism with investors, would likely be $5.60-$5.90 a kilogram, down from the forecast $6.05 a kilogram.

Morgans analyst Belinda Moore said Murray Goulburn should meet that guidance, saying net profit is likely to be at the bottom end of the $66 million to $86 million range.

“This has seen us downgrade our FY16,17 and 18 NPAT forecast by 6.6 per cent, 4.4 per cent and 3.4 per cent respectively,” Ms Moore wrote in a note to investors.  But she remained upbeat about the co-operative’s long-term prospects.  “While Murray Goulburn is unlikely to achieve its original prospectus forecasts, we still believe the company provides investors with solid exposure to improving dairy industry fundamentals and MG’s strong earnings growth from its capital investment program.”

The co-operative raised $500 million through the listing of a non-voting trust, which will be used to upgrade its factories and fund its expansion into higher value-added branded products and overseas markets.

It is spending $145 million on rebuilding its cheese plant at Cobram in northern Victoria which will produce Coles’ home brand range from January 2017.

“This contract will underpin MG’s new cheese investment capacity and is in line with the company’s strategy of growing more stable and higher margin dairy foods volumes,” Ms Moore said.

PAC Partners director Paul Jensz said Murray Goulburn was “on the right path”, but had to balance how they share that value added improvement with farmers and investors.

“It’s quite a fine balance they have to manage and I think they’re doing a good job. They’re staggering the capital across drinking milk, cutting and packing of cheese and they’re holding fire on infant formula until they get enough customers,” Mr Jensz said.

“The concern of the investors is they do not want Murray Goulburn to dip into that $500 million to pay dairy farmers to keep the milk supply.”

By: Jared Lynch


Summer 2018