The company has opened its farm-gate milk price for FY18 at $5.20-5.40/kg of milk solids. The company is also undertaking a strategic review.
Because of the lower–than-expected forecast milk intake, Morgans revises net profit forecasts down by -7.4% and -14.0% for FY18 and FY19 respectively. Competitors are likely to pay a higher farm-gate price and further market share losses are expected by the broker.
Morgans agrees the company needs to address the appropriateness of its profit sharing mechanism and conflicted capital structure but, in the meantime, uncertainty around many aspects is too great. Hold rating retained. Target is reduced to $0.75 from $1.00.
Sector: Food Beverage & Tobacco.
Target price is $0.75.Current Price is $0.74. Difference: $0.02 – (brackets indicate current price is over target). If MGC meets the Morgans target it will return approximately 2% (excluding dividends, fees and charges – negative figures indicate an expected loss).