CEO Hellou staked his job on the restructure keeping FMPs at or above $6.00.
It would appear that he and CFO Hingle allowed inventory to run too high, too long as demand waned? The FMP reduction for the whole 2016 year appears to reassign the write off of inventory to the dairy farmers bottom line. No wonder they're calling for blood and Chairman Tracy brought the heads of Hellou and Hingle to the announcement. What balls he has!
Can you imagine being one of the Directors who has to explain this to Farmers? A tough gig indeed. No wonder there have been resignations.
A tough cull by Tracy but then you want someone to make tough decisions. Afterall, this fiasco is moreso about MG being a victim of the global dairy glut, fickle Chinese demand and a management with rose coloured glasses.
How far below NTA is the SP now? Is opportunity knocking for Saputo?
Have Saputo or BGA announced FMP revisions? Will they?
MG was a $1.2 billion Company the market is now valuing under $500 million. Equities are normally valued as a function of FUTURE maintainable earnings. The distribution yield in the PDS was 6.4%. As the RBA reduces interest rates so should the yield forecast. One RBA reduction and 2 more forecasted brings the yield to 5.65%. The current distribution forecast is 7.5c which implies a SP of $1.33 (up from $1.17 when 6.4%).
The PDS forecasts were based on an AUD of 76c. It was 78c when MGC made their last profit downgrade. It's currently 73c.
The distribution yield was lowered in line with profit forecasts. What if May and June sales rebound? Even if they don't, the AUD will deliver a profit updraft. Will the distribution rise accordingly?
Will the global dairy industry always be this bad? Will Russia renew dairy imports next month? Will China increase their dairy consumption comparative to their neighbours which is roughly under half at the moment?
Global dairy will take some time to churn the excess but what will be MG's FUTURE profitability?
The market hates uncertainty hence the massive discount to MGC's SP valuation but these times will pass and the long term investor will be rewarded.
MGC Price at posting:
97.0¢ Sentiment: Buy Disclosure: Held
