New Zealand Professional Investment Services Firm

Forsyth Barr

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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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>NZX Dairy Derivatives Partnership</h2>
<ul>
<li>NZX have entered into the first stage of an agreement with the Singapore stock exchange to list NZX’s suite of diary derivative commodities</li>
<li>This would mean NZX’s dairy derivatives products would be traded and cleared on the Singapore exchange</li>
<li>The move would allow distribution to 80 of Singapore’s participants in efforts to grow the number of lots traded through speculators in addition to those hedging the commodity price</li>
<li>Dairy Derivatives make up 2.2% of FY19 Revenue for NZX, with growth slowing in recent years</li>
<li>We view strategic partnerships as a sensible way to accelerate growth in the business longer term but make no changes to forecast at present given the uncertain implications and timeframe involved</li>
<li>NZX rating: OUTPERFORM</li>
</ul>
&nbsp;
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1680416314543836188&amp;th=175209bc1f280c1c&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ8Xgv9PiO2X20zXDbwUYALpWtPBskvnht9-KsCKvkAywZCfe_uiZQ9xARqVpn7zXuEC9JzQobWzX-s5KKgVdYwSi7b0gzHnOWY3zsgB4HHqp71LBMpwPuOE2v4&amp;disp=emb" width="311" height="162" class="editor-image img-responsive" data-image-whitelisted=""></figure>
What does this mean for NZX?
NZX is targeting between 450,000 and 550,000 dairy lots traded for FY20. After nine months of trading, 286,589 lots have been traded. Growth has slowed in recent years with our forecast for the year 385,000.
Listing on the Singapore exchange would increase the number of participants from 7 members to an additional 80. We view this as a sensible way to increase distribution exposure in an effort to grow the number of speculators trading the product and the number of lots traded over time. This also raises NZX’s profile and that of New Zealand capital markets.
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.3&amp;permmsgid=msg-f:1680416314543836188&amp;th=175209bc1f280c1c&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ-sIetHnGZkBTAvAkzVtQUtLi2tCOp9H9qI-U22ICCKc5dlgNzePS7j1I_YYaLRI2fY-QfN9_E8mspnA03c7XeY0Ojw4QuxnjY1fXZRdHk276ahEx5JjI5tuOs&amp;disp=emb" class="editor-image img-responsive"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.4&amp;permmsgid=msg-f:1680416314543836188&amp;th=175209bc1f280c1c&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ85sb4AdOeehn0NozbwnDzdX36BFymZYmo7pKbHUL64tyXeBxL9uHNQ13W1h1CkBSBp5tZPCihZTDnGB3GV7thIJLtk6oNbO6ahFmRPv5jOZb_KHIoEEPBCbcY&amp;disp=emb" class="editor-image img-responsive"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.5&amp;permmsgid=msg-f:1680416314543836188&amp;th=175209bc1f280c1c&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_EtDtE-6NT-kqBh9FLR3fX6XGLV2s3uvWb01K75PmARYNkfBG-BlRxm5DUcAwnz9hCNLny5oIy9TqM46U4Oyhy9jmBnMPw3eDu6muGFhL982MKwZ8bs4dNekA&amp;disp=emb" class="editor-image img-responsive"></figure>
What are dairy derivative lots?
NZX has two parts of the dairy derivatives business. Both are US$ cash settled contracts of exchange (not physically delivered). The agreement with the Singapore exchange would be purely for the commodities side of the business.
1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Traded commodities part of the business:
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A lot is 1000kg of product
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This segment of the business was started in 2010
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Products include:
WMP whole milk powder SMP skimmed milk powder BTR Butter AMF Anhydrous milk fat Butter milk powder&nbsp;
2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fonterra milk price part of the business (milk price contracts where Fonterra set the price every fortnight and traded by farmers)
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A lot is 6000kg of milk solid
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Volatility is caused by 1) weather 2) Supply of milk in NZ 3) Global demand for milk 4) Macro influences
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This segment of the business was started in 2016
Jamie Foulkes Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1680416314543836188&amp;th=175209bc1f280c1c&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ8u5gX6QpKPfSvIMeYGZkeuydBD8-f5MTchLR7oMFmbDqX8wWp3yxgeVESGRJUZRAyLKZep9gPZYdVVZ8vh_Qks0CF4W6qPfBv8Zs1CLRWTyC15NMCMBHk8GBQ&amp;disp=emb" class="editor-image img-responsive"></figure>
P:+64 4 914 2217 |TF:0800 367 227 Level 22, NTT Tower, 157 Lambton Quay, Wellington

NZX Dairy Derivatives Partnership

NZX have entered into the first stage of an agreement with the Singapore stock exchange to list NZX’s suite of diary derivative commodities
This would mean NZX’s dairy derivatives products would be traded and cleared on the Singapore exchange
The move would allow distribution to 80 of Singapore’s participants in efforts to grow the number of lots traded through speculators in addition to those hedging the commodity price
Dairy Derivatives make up 2.2% of FY19 Revenue for NZX, with growth slowing in recent years
We view strategic partnerships as a sensible way to accelerate growth in the business longer term but make no changes to forecast at present given the uncertain implications and timeframe involved
NZX rating: OUTPERFORM

&nbsp;

What does this mean for NZX?
NZX is targeting between 450,000 and 550,000 dairy lots traded for FY20. After nine months of trading, 286,589 lots have been traded. Growth has slowed in recent years with our forecast for the year 385,000.
Listing on the Singapore exchange would increase the number of participants from 7 members to an additional 80. We view this as a sensible way to increase distribution exposure in an effort to grow the number of speculators trading the product and the number of lots traded over time. This also raises NZX’s profile and that of New Zealand capital markets.



What are dairy derivative lots?
NZX has two parts of the dairy derivatives business. Both are US$ cash settled contracts of exchange (not physically delivered). The agreement with the Singapore exchange would be purely for the commodities side of the business.
1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Traded commodities part of the business:
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A lot is 1000kg of product
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This segment of the business was started in 2010
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Products include:
WMP whole milk powder SMP skimmed milk powder BTR Butter AMF Anhydrous milk fat Butter milk powder&nbsp;
2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fonterra milk price part of the business (milk price contracts where Fonterra set the price every fortnight and traded by farmers)
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A lot is 6000kg of milk solid
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Volatility is caused by 1) weather 2) Supply of milk in NZ 3) Global demand for milk 4) Macro influences
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This segment of the business was started in 2016
Jamie Foulkes Analyst, Equities

P:+64 4 914 2217 |TF:0800 367 227 Level 22, NTT Tower, 157 Lambton Quay, Wellington

NZX

NZX: Dairy Derivatives Partnership