citibank buy recommendation & target price

Wilmar's Goodman Fielder stake could flush out other suitors

• BY:GILLIAN TAN
• From:The Wall Street Journal
• March 14, 2012 2:10PM

MAN does not live on bread alone, but add mayonnaise or margarine and he could be interested.

Citi analysts reckon Wilmar International’s appetite for some or all of Australia’s largest listed food producer Goodman Fielder is apparent, following the Singapore-based company’s grab for 10.1 per cent of Goodman Fielder last month.

“We believe other potential suitors for the group exist in the form of private equity and other Asian-based trade buyers,” Citi analyst Andy Bowley said in a note to clients, naming Bright Food Group as one such trade buyer.

“The appetite for Australian food manufacturing assets would appear constrained from the large multi-national brand owners.

“Many of these players have experienced diminishing margins and returns over the past 18 months and are more likely to divest than invest, in our opinion, Mr Bowley said.

“Therefore, we expect other trade interest to stem from Asia,” he said.

Citi believes private equity could be attracted to the company due to stable cash flows, recognised brands, extensive distribution and an Asian growth platform.

Mr Bowley added that he does not expect Wilmar to sit on its 10.1 per cent stake with the intention of a capital return alone.

He added that though Wilmar now has a blocking stake in the event of a takeover bid from elsewhere, it would require a bigger stake to influence corporate strategy or operational decision making.

The broker reckons Wilmar’s future playbook could see it lifting its stake further, positioning itself for non-core asset disposals or establishing formal operational and strategic links to Goodman Fielder.

It’s notable if Wilmar was to increase its stake above 14.99 per cent, Foreign Investment Review Board approval would be required, and a full takeover bid would be necessary if Wilmar wanted to lift its stake above 19.99 per cent.

Citi believes Wilmar has sufficient funding capacity to comfortably launch a full takeover bid for Goodman Fielder.
Mr Bowley expects Goodman’s sale of its edible oils and fats business, Integro Foods, and NZ Milling operations to realise up to $270m in proceeds.

With potential deals expected to be announced within the next three to four months, Citi reckons they will be a catalyst for Wilmar’s next move.

Citi has a buy recommendation and a price target on Goodman of 75c a share, 9.5 per cent higher than its last traded price of 68.5c a share.

Based on comparable industry M&A multiples, the broker calculates a bid range for Goodman between 71c a share and 93c a share.



http://www.theaustralian.com.au/business/wall-street-journal/wilmars-goodman-fielder-stake-could-flush-out-other-suitors/story-fnay3vxj-1226299338456