After Mainland sale, Forsyth Barr says, Fonterra steady state will be around 52c earnings per share annually.
Fonterra interim results for FY25 imply that the ingredients and foodservice channels will be able to achieve the targeted return on capital of 10-12% when the Mainland consumer businesses are sold.
Forsyth Barr equities analysts Matt Montgomerie and Benjamin Crozier said a trade sale of Mainland Group remains the most likely outcome of the divestment process.
They have valued the group sale between $2.5 billion and $3bn.
The return on capital for the consumer division and Fonterra Australia have been a noticeable drag on Fonterra’s returns for some time, they said.
After the Mainland sale, Forsyth Barr said, the Fonterra steady state will be around 52c earnings per share annually and implied dividends around 37c.
Craigs Investment Partners is forecasting EPS of 66c this financial year, followed by two years of 59c.
Assuming the 70% payout, dividends would be 47c, 42c and 41c, respectively.
Fonterra disclosed that operating earnings from the businesses in scope for sale rose 16% to $208m in the first half of FY25 compared with FY24.
However most of that improvement came from the Fonterra Australia ingredients products, which had an operating loss in FY24.
Fonterra Group shares (FCG) and Fonterra Shareholder Fund units (FSF) are forecast to generate 11-13% gross dividend yield in FY25.
The FCG price is $4.95, up 20c over the past month, and FSF is $5.76, up from $5.10 since the beginning of March.
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