Higher international dairy prices have translated into a brighter outlook for New Zealand Farming Systems Uruguay, but a leading sharebroker warns risks with the stock remain.
New Zealand Farming Systems Uruguay (NZFSU) has advised that its expected loss in earnings before interest and tax (ebit) was now expected to be no more than $NZ14 million ($US10 million), a better result than the previously forecast loss of between $14 million and $21 million.
A Craigs Investment Partners analysis said that while the stock had valuation appeal, "substantial" risks remained.
It has revised its target share price for the stock from NZ48c to NZ53c.
NZFSU earnings were sensitive to factors beyond management's control and investor uncertainty had been magnified by the company's ongoing efforts to raise sufficient capital to implement its business plan.
The brighter prediction was based on an assumed full-year average milk price of NZ39c a litre for this financial year, up from NZ34c a litre in the 2009 financial year.
Rising spot whole milk prices bolstered Craigs' assumptions, although Fonterra has commented that dairy product prices in the future could be volatile.
Earlier this month, NZFSU said the higher ebit loss was based on a milk price of NZ28c a litre.
It also noted there was potential for those prices to go higher and that this year's Uruguayan summer was more favourable than last year's.
