Fosters

Fosters (FGL) has a reiterated Outperform recommendation and a share price target of $6.92 from Australian sharemarket analyst Macquarie Research Equities. The analysts were excited by their report last month and believe the stock is well placed to deliver on their growth expectations of 12% EPS growth in 2008, followed by 7.9% in 2009. FY07 result shows wine momentum building. Reconciling FGL’s FY07 result is like putting together a jigsaw – thanks to significant items, discontinued businesses, SGARA and a regional and product-based segment reporting matrix. However, when you do get all the pieces into place the picture is encouraging. Particularly the accelerating volume and revenue growth reported by the wine division – and associated EBITS margin expansion. FY08 guidance particularly vague – with the only numbers in the FY07 result outlook comments being dates. Management did provide some general expectations for underlying business performance – in constant currency terms. It was suggested that revenue growth will be driven by price and mix, margin expansion will be driven by this revenue growth and cost savings, and EPS growth will be boosted by buybacks. Cash conversion is forecast to ‘remain strong’, while ROCE will improve. While management's comments are encouraging, translating this into hard numbers is what it's all about. The analysts have scrutinised and subsequently tweaked their assumptions, with detailed forecasts for FY08 by region. Despite the headwinds of a stronger AUD and small Australian vintage 2007, They remain confident that FGL can deliver 5.6% (A$65m) continuing business EBITS growth in FY08. They expect this to be underwritten by the Australian beer business, which they forecast to deliver 59% of the groups growth (+$38m, or 5.3% divisional EBIT growth), driven by price realisation, VB mid and VB duty savings. They expect AAP wine to deliver 35% of group growth (+$23m, or +16% divisional EBITSgrowth) driven by price realisation and synergies. They expect the America's region to deliver just 3.7% AUD FY08 EBITS growth (+$9m), with +13% growth in USD terms diluted by the stronger AUD. And after a remarkably strong FY07, we forecast the EMEA region to report a 6% EBIT decline in FY08 (-$4m), or a 1.4% EBIT decline in GBP terms. Their adjusted FY08 NPAT target is $751m – growth of 9.1% on FY07 NPAT (pre ISIs, post SGARA). MRE’s adjusted EPS growth forecast is 12.4%, thanks to a ~3% reduction in EFPOWA from the FY07 and FY08E buybacks. FY08 EPS forecast represents 8% growth on FY07 EPS pre SGARA and ISIs (35.6cps). The analysts are encouraged by the operational improvements evident in FGL's wine division. And while environmental challenges remain (vintage, AUD). Read a previous Fosters (FGL) stock recommendation.

Shares analyst UBS have a look at which shares Outperform when the Australian dollar rises. The analyst: The obvious way to measure a share's currency sensitivity is to look at its EPS sensitivity. However, the shares analyst note that this ignores what else is going on when the Australian dollar (A$) is rising.

Foster's Group (FGL) has a Neutral 1 trading recommendation and a share price target of $7 from analyst UBS. Foster's FGL hosted an investor site visit to Napa Valley last week to give an up close look at how it's US (and EMEA) wine businesses are performing. The analyst also met with industry insiders in California for a balanced view of local trading conditions. Foster's has no STZ-like US distributor inventory adjustment. Underlying market growth is healthy and FGL's product innovation should contribute more in H2 07. Like competitors, FGL's UK business is suffering pricing and cost pressure. While volume growth is strong now we expect trouble if STZ fights back. A first mover advantage should maintain FGL's lead in Europe. Foster's site visit was just 3 weeks after H1 07 results and our rating, valuation and estimates are unchanged. In our view, FGL needs to address certain operational problems and recover higher grape costs before achieving its cost of capital in wine. This looks unlikely in FY08, even 3 years after SRP was acquired.