Foster's Group (FGL) News

Foster's Group (FGL) has a neutral rating and a share price target of $6.00 from Australian stock analyst Macquarie Research Equities.

Foster's Group (FGL) A long road to unlocking value

Event: Wine strategic review:

In an admission of poor Wine returns FGL's CEO has resigned; the company is taking a $670-770m pre-tax write down; and the Wine strategy is under review. Meanwhile trading is below expectations with FY08 constant currency EPS growth expected to be 5-7% rather than the previous guidance of +10%.

Impact: FY08 EPS -2.5%; FY09 -5.3%; FY10 -5.6%:

We have trimmed our estimates by 2-5% over the next 3 years given continued A$ strength & weaker underlying trading. The impairment charge/reclassification improves Wine ROIC by 180bp to 8.9% but could have been higher in our view.

Action: CEO appointment or strategic review; whatever comes first:

A new CEO & outcome of the Wine review will dictate where FGL trades from here. We see strong external CEO candidates available. We calculate 6-23% share price upside from a de-merger of Beer & Wine but this could take time to execute.

Valuation: Downgrade to Neutral; $6.00 price target

We reduce our price target to $6.00 (from $6.53) based on the average of a DCF & SOTP and downgrade our rating to Neutral. LNN could benefit from disruption at FGL but remains highly valued at 16.6x FY09e PE (rated Neutral).