Goodman Fielder may miss float targets

Goodman Fielder, the Australasian food group spun out of Graeme Hart's Burns Philp, may miss targets set out for its float last year as it suffers from the slide in the dollar and surging fuel and wheat prices.

UBS Warburg, which last year helped Hart float the business on the New Zealand and Australian stock exchanges, this week forecast operating profits in the year to this June would be A$348 million ($414 million). This compares with its earlier forecast of A$357.5 million and Goodman's prospectus forecast of A$355.6 million.

"The main earnings headwind facing Goodman Fielder is the dollar, which has deteriorated [by about] 11 per cent since it published its prospectus in November," UBS analyst Lindy Newton said.

The failure, if it materialises, will knock some of the sparkle from Hart's reputation, which was recently enhanced by the Burns Philp $1.1 billion sale of the Uncle Toby's snack business. Before the Goodman float, many investors were wary about its growth prospects and its vulnerability to a downturn.

Goodman's shares last night were down 2c to $2.53 as other analysts concurred with Newton's analysis.

Newton says Goodman will also miss next year's operating profit target of A$405.6 million. Instead, she forecasts the company will make only A$386 million.

Goodman Fielder generates almost half its earnings from New Zealand, where it owns the Meadow Fresh and Tararua dairy brands, Vogel's bread and Kiwi Bacon. As a result, the kiwi can have a profound influence on its earnings, measured in Australian dollars.

At the time Goodman published its prospectus it expected the Australian dollar to fetch $1.0863 this year and $1.0843 next year. However, since the start of the year, it has traded consistently above that level. It closed last night at $1.19.

Newton said rising wheat prices would be felt most in the year to June 2007. In the present year, the business had covered most of its wheat requirements with forward contracts. But next year, it had covered its Australian business requirements by only about 7 per cent.

"If wheat prices continue to rise from here Goodman will be locking in 2007 prices ahead of budget and future earnings will be negatively impacted, in our view, depending on Goodman's ability to achieve above normal prices."

The departure of Baden Ngan Kee, head of the New Zealand dairy business, would also hurt the company.