A day after Murray Goulburn surprised the market with a dire warning that it will need more deep cost cuts to get the benefits of a big restructuring program, investors are starting to wonder if the group will survive in its current form.
Securities in Murray Goulburn fell 15% at 62c, a new all-time low. That followed a 12% slump on Tuesday, warned it will need deeper cost cuts. The uited ended down 9.5% at 66.5 cents.
The securities are now 70% below its 2015 float price of $2.10.
Investors wonder is the company – which has already suspended dividends – will inflict more pain on public (non-farmer) shareholders, forcing them bear more of the brunt of the costs of Murray Goulburn’s planned restructure.
The latest restructuring may see the company’s profit sharing mechanism and the payout ratio altered, which will inflict more pain on investors while allowing Murray Goulburn to continue to support its milk suppliers who were abused financially by the company in 2016 as it struggled with the collapse in dairy prices and the overpayment of loans to farmers..
Bell Potter warned clients the foreshadowed comprehensive strategic review "is extremely ambiguous and could mean anything from collapsing the existing corporate structure to announcing a shift in the profit sharing mechanism and payout ratio (to retain capital)".
"In our view the strategic review possess a material risk to the current earnings model, creating material uncertainty around any earnings and dividend forecasts in FY18-19."
"Even though the turn in the dairy cycle should favour investing in Murray Goulburn’s units, there is "limited visibility on the possible effect the strategic review", the firm warned.
In its statement to the ASX on Tuesday, Murray Goulburn forecast a farmgate milk price of between $5.20 and $5.40 a kilogram of milk solids for the 2018 financial year, although the opening price has been set at a more modest $4.70.
Achieving the forecast price level depends on further cost cutting, along with the outlook for product prices in export markets and also the likely strength of the Australian dollar in foreign exchange trading, according to the company.
Chief executive Ari Mervis said in the statement the review would look at all aspects of the company including the “ orporate structure, profit-sharing mechanism and capital structure”.
"I see this review as a fundamental next step to strengthen [Murray Goulburn] for the future. We need to just pause and reflect … and just ensure that what we do have in place is optimal and fit-for-purpose to make us competitive into the long term," he said on Tuesday.
Murray Goulburn is facing a Federal Court case brought by the ACCC over allegations it misled farmers about how much it would pay them.
This week’s opening farmgate milk price considerably lower than its full-year target range and announced a review into all aspects of its strategy and corporate structure. But Murray Goulburn offered no detail on what changes the review could deliver, and said it will provide an update in August. That is what is starting to worry some analysts and non-farmer investors in the company.
