Goodman Fielder (GFF)

By Jason Fittler

GFF is one of Australasia’s largest food manufacturing and processing companies. It owns a number of iconic foods brands including Buttercup, Meadow Lea, Wonder White and Helga’s.

Goodman Fielder’s reported NPAT of A$177.1m which met guidance of A$170m-185m. Cash flow was very strong at A$285.1m up 35.4% on last year, reflecting a marked improvement in working capital (with both debtor and inventory days reduced).

Goodman Fielder’s 2009 result highlighted the strong cash flow generative ability of its core businesses. Further working capital improvements are likely in 2010, with an up weighted marketing spend targeted at driving improved product mix.

Their result highlighted the potential for Goodman Fielder to realize strong cash flows in a more normalised input cost environment, a feature we expect to carry into 2010.

With the A$700m November 2010 refinancing under way, we believe the balance of risks points to solid profit growth and a healthy balance sheet for 2010.

Goodman Fielder is trading at a 37% discount to the S&P/ASX 200 versus an historical discount of 15-20%, which combined with a high-single-digit dividend yield underpins our Buy recommendation.

Goodman Fielder should readily achieve double-digit growth in 2010, in our view. Potential swing factors include marketing spend, the ultimate degree of commodity cost saving retention, and warehouse and distribution costs. 

Our target price of A$1.60 is unchanged the full-year dividend of 10.5cps reflected an 82% payout ratio, which the company anticipates maintaining. With capital growth expected of 6% and a 7.8% dividend this is a core holding for those investors chasing income.

If you would like more information on Goodman Fielder (GFF) please call me on 07 4771 4577.