Daily ShareChat: Sanford Limited

By Jenny Ruth

Tuesday 23rd June 2009

The key drivers of Sanford's earnings are underlying fish prices, the New Zealand dollar/US dollar exchange rate and oil prices and Adrian Allbon at Goldman Sachs JB Were is expecting negative news on all three fronts.

"Our base case view is underlying seafood prices will continue to weaken over the second half, driven by lower global demand and Sanford actively lowering its higher first-half inventory balance," Allbon says.

"While second-half earnings will benefit from our expected 20% year-on-year decline in the New Zealand dollar to an average of 60 US cents, further material upside from currency is a diminished prospect," he says.

Goldman Sachs is forecasting higher oil prices which is the major reason for Allbon downgrading his forecast 2010 earnings for Sanford by 6%.

"If our bullish oil view turns out to be correct, then this will be a strong cost headwind for Sanford to navigate, even though over the medium term we would expect underlying fish prices to also strengthen."

Allbon is forecasting Sanford's adjusted net profit for the year ending September will be $44.2 million, up 4% from his previous forecast and from $29.8 million last year, but has cut his 2010 forecast by 6% to $35.8 million.

BROKER CALL: Goldman Sachs JB Were rate Sanford (NZX: SAN ) as sell (downgraded from hold).

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