New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2><a target="_blank">Food for Thought</a></h2>
What’s in Store for the Primary Industry this Summer?
Weather variability in recent years has led to some adverse outcomes for the New Zealand listed Food, Beverage and Agriculture sector — while we are not out of the woods, recent outlook has normalised for key areas and indicators, hence, risks have reduced. Forecasts are now for ‘average’ conditions over the key Summer harvest period, with movements over recent weeks lowering weather risk. Industry anecdotes we have gathered are also predominantly positive, although it is still early days. We have a positive bias to the sector, with stock preferences (in order): The a2 Milk Company (ATM), New Zealand King Salmon (NZK), and Sanford (SAN).
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.0.1&amp;permmsgid=msg-f:1655842314579063897&amp;th=16fabbcfe48bb459&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_Fybp0ihSzH5NWnF7RzNgQBa7vUjTSCtIeGrFMpvUvpAPzAgkR5E_eHn_g14YheeUNNRPhcBKmniyMTKIMKOWLs0sjDqt3KTUdSZWmyEPyg33JZgsggLdn1mg&amp;disp=emb" width="401" height="186" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Climate outlook snapshot — average conditions with pockets of dry
NIWA’s seasonal outlook for the key Summer period (January to March 2020) is for average temperatures and rainfall, with indicators pointing to neutral weather patterns. History suggests this is favourable for the sector. The current weather outlook for key horticulture/viticulture periods should see Scales (SCL), Delegat (DGL) and Seeka (SEK) navigate summer unscathed.
Key areas of risk are: (1) localised dry spells in the upper North Island — with Fonterra (FSF) and Skellerup (SKL) most exposed, and (2) warmer waters — although temperatures are below last year and forecasts have improved in recent weeks, lowering the risk to NZK and SAN.
Other key data of interest in this edition
<ul>
<li>Recent Kantar data trends positive for growing consumption of ATM’s key Infant Formula products in China. December was particularly strong, with market share in the survey of 7.5%.</li>
<li>Dairy sector health indicators mixed. Positives: demand, milk price and confidence; key risks: negative farm prices, dry weather in some areas of NZ and elevated gearing.</li>
</ul>
<div class="content-highlight">
Investment View
We summarise our sector stock ratings as follows:
<ul>
<li>OUTPERFORM: The a2 Milk Company (ATM), Sanford (SAN), NZ King Salmon (NZK)</li>
<li>NEUTRAL: Scales (SCL), Synlait Milk (SML), Delegat Group (DGL),&nbsp; PGG Wrightson (PGW)</li>
<li>UNDERPERFORM: n/a</li>
<li>Not rated: Comvita (CVT), Fonterra (FSF), Skellerup (SKL)</li>
</ul>
</div>
Chelsea Leadbetter, CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262
Guy Hooper guy.hooper@forsythbarr.co.nz +64 4 495 5255

Food for Thought
What’s in Store for the Primary Industry this Summer?
Weather variability in recent years has led to some adverse outcomes for the New Zealand listed Food, Beverage and Agriculture sector — while we are not out of the woods, recent outlook has normalised for key areas and indicators, hence, risks have reduced. Forecasts are now for ‘average’ conditions over the key Summer harvest period, with movements over recent weeks lowering weather risk. Industry anecdotes we have gathered are also predominantly positive, although it is still early days. We have a positive bias to the sector, with stock preferences (in order): The a2 Milk Company (ATM), New Zealand King Salmon (NZK), and Sanford (SAN).

Climate outlook snapshot — average conditions with pockets of dry
NIWA’s seasonal outlook for the key Summer period (January to March 2020) is for average temperatures and rainfall, with indicators pointing to neutral weather patterns. History suggests this is favourable for the sector. The current weather outlook for key horticulture/viticulture periods should see Scales (SCL), Delegat (DGL) and Seeka (SEK) navigate summer unscathed.
Key areas of risk are: (1) localised dry spells in the upper North Island — with Fonterra (FSF) and Skellerup (SKL) most exposed, and (2) warmer waters — although temperatures are below last year and forecasts have improved in recent weeks, lowering the risk to NZK and SAN.
Other key data of interest in this edition

Recent Kantar data trends positive for growing consumption of ATM’s key Infant Formula products in China. December was particularly strong, with market share in the survey of 7.5%.
Dairy sector health indicators mixed. Positives: demand, milk price and confidence; key risks: negative farm prices, dry weather in some areas of NZ and elevated gearing.


Investment View
We summarise our sector stock ratings as follows:

OUTPERFORM: The a2 Milk Company (ATM), Sanford (SAN), NZ King Salmon (NZK)
NEUTRAL: Scales (SCL), Synlait Milk (SML), Delegat Group (DGL),&nbsp; PGG Wrightson (PGW)
UNDERPERFORM: n/a
Not rated: Comvita (CVT), Fonterra (FSF), Skellerup (SKL)


Chelsea Leadbetter, CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262
Guy Hooper guy.hooper@forsythbarr.co.nz +64 4 495 5255

Food for Thought: What’s in Store for the Primary Industry This Summer?

<h2>Delegat Group</h2>
FY19 Result — Smaller Vintage, Tougher Outlook
Delegat (DGL) delivered another period of strong earnings growth, consistent with our forecasts, underpinned by the signing of a new UK customer during the period. Outlook commentary suggests profit growth will be hard to replicate in the near-term with case sales growth offset by a negative market mix impact and higher costs/case.
What’s changed?
<ul>
<li>Earnings:&nbsp;Operating NPAT cut by -11%/-10% in FY20/FY21, in line with FY20 guidance, reflecting lower margin assumptions</li>
</ul>
Record volume growth driven by new UK customer
DGL reported record FY19 Operating NPAT, up +14% and in line with market expectations. Record year on year case sales growth, up +10%, to just over 3m cases, was underpinned by a new distribution listing with UK based Co-op at the beginning of the period. A decline in average realised price was driven by country mix, offset slightly by favourable FX movements. The North American market continues to provide strong growth (volumes up +7%) while China recorded significant growth off a low base, with the market representing a longer-term opportunity.
Strong case sales growth…
DGL guided to continued case sales growth, increasing at a +7% CAGR out to FY22, supported from a grape supply perspective by its current land bank. However, a second softer harvest may begin to put pressure on inventories. DGL’s new customer, and the wider UK convenience market, will continue to provide volume growth in the near-term, albeit at a slower pace than FY20 and driving negative margin mix for DGL. North America remains a key growth market in contrast to a more mature Australasia.
…flat profit given higher cost/case
DGL provided first time FY20 guidance of operating profit flat on the prior year on case sales growth of +8%. A soft FY19 harvest, down -11% on the prior year has a negative impact on COGS/case with DGL’s fixed cost base spread over smaller grape crush. Adding to the cost pressure, management signalled a step up in marketing expense. We have trimmed our medium term profit forecasts accordingly with suppressed margins expected over the next two years. DGL also updated capex guidance, signalling FY20 spend of NZ$43m, in line with prior forecasts. Capex is targeted at infrastructure and vineyard development across its portfolio as well as additional land purchase, predominantly in Hawkes Bay.
<div class="content-highlight">
Investment View
DGL’s investment cycle is coming to an end, and we expect capital expenditure over the next three years to be largely directed towards land development as opposed to winery build and land acquisition. This is supportive of increasing supply volumes. The North American wine market remains an important growth avenue for DGL with the UK, Australia, and New Zealand markets more mature.
</div>
Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255

Delegat Group
FY19 Result — Smaller Vintage, Tougher Outlook
Delegat (DGL) delivered another period of strong earnings growth, consistent with our forecasts, underpinned by the signing of a new UK customer during the period. Outlook commentary suggests profit growth will be hard to replicate in the near-term with case sales growth offset by a negative market mix impact and higher costs/case.
What’s changed?

Earnings:&nbsp;Operating NPAT cut by -11%/-10% in FY20/FY21, in line with FY20 guidance, reflecting lower margin assumptions

Record volume growth driven by new UK customer
DGL reported record FY19 Operating NPAT, up +14% and in line with market expectations. Record year on year case sales growth, up +10%, to just over 3m cases, was underpinned by a new distribution listing with UK based Co-op at the beginning of the period. A decline in average realised price was driven by country mix, offset slightly by favourable FX movements. The North American market continues to provide strong growth (volumes up +7%) while China recorded significant growth off a low base, with the market representing a longer-term opportunity.
Strong case sales growth…
DGL guided to continued case sales growth, increasing at a +7% CAGR out to FY22, supported from a grape supply perspective by its current land bank. However, a second softer harvest may begin to put pressure on inventories. DGL’s new customer, and the wider UK convenience market, will continue to provide volume growth in the near-term, albeit at a slower pace than FY20 and driving negative margin mix for DGL. North America remains a key growth market in contrast to a more mature Australasia.
…flat profit given higher cost/case
DGL provided first time FY20 guidance of operating profit flat on the prior year on case sales growth of +8%. A soft FY19 harvest, down -11% on the prior year has a negative impact on COGS/case with DGL’s fixed cost base spread over smaller grape crush. Adding to the cost pressure, management signalled a step up in marketing expense. We have trimmed our medium term profit forecasts accordingly with suppressed margins expected over the next two years. DGL also updated capex guidance, signalling FY20 spend of NZ$43m, in line with prior forecasts. Capex is targeted at infrastructure and vineyard development across its portfolio as well as additional land purchase, predominantly in Hawkes Bay.

Investment View
DGL’s investment cycle is coming to an end, and we expect capital expenditure over the next three years to be largely directed towards land development as opposed to winery build and land acquisition. This is supportive of increasing supply volumes. The North American wine market remains an important growth avenue for DGL with the UK, Australia, and New Zealand markets more mature.

Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255

Delegat Group: FY19 Result — Smaller Vintage, Tougher Outlook

New Zealand

Delegat Group Ltd. produces wine.  The Company buys grapes from local growers and produces sauvignon blanc, chardonnay, pinot noir, and merlot.  Delegat markets its wines in North America, Europe, Asia, the Middle East, Australia, and New Zealand.

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Delegat (DGL NZ)

Food for Thought: What’s in Store for the Primary Industry This Summer?

Food for Thought What’s in Store for the Primary Industry this Summer? Weather variability in recent years has led to some adverse outcomes for the...

Forsyth Barr

Delegat Group: FY19 Result — Smaller Vintage, Tougher Outlook

Delegat Group FY19 Result — Smaller Vintage, Tougher Outlook Delegat (DGL) delivered another period of strong earnings growth, consistent with our...

Forsyth Barr

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52-week Range

Market Cap (USDm)

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