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Matt Montgomerie: Forsyth Barr Senior Analyst on Fonterra proposed sale · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: Can.
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  Speaker 2: New ASP report out this morning says Fonterra's plan to
• 0:02
  Speaker 2: sell its retail brands could unlock four and a half
• 0:05
  Speaker 2: billion in extra spending across the economy. Half of it
• 0:07
  Speaker 2: two point two would flow into manufacturing retail real estate.
• 0:11
  Speaker 2: The average farmer return could hit almost four hundred k.
• 0:14
  Speaker 2: Matt Montgomery is full sith by senior analyst Equities with
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  Speaker 2: me this morning. Matt, good morning, Good morning.
• 0:19
  Speaker 1: Rans.
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  Speaker 2: Does this sound about right to you?
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  Speaker 1: Well, I think if you consider the total payment that
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  Speaker 1: farmers are getting, it's around three point two, and I
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  Speaker 1: think you'd naturally expect some border flow through to the
• 0:34
  Speaker 1: border economy, particularly when you consider it had a time
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  Speaker 1: where on farm returns are pretty healthy and possibly at
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  Speaker 1: record level. So there clearly things are a little bit
• 0:47
  Speaker 1: tougher in the urban economy. So hopefully we see some
• 0:51
  Speaker 1: pull through across border New Zealand.
• 0:53
  Speaker 2: We're all hoping to bludge off it, aren't we. What
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  Speaker 2: the argument was of that farmers will take it and
• 0:58
  Speaker 2: pay down debt is that, you know, how do we
• 1:01
  Speaker 2: figure out what they want.
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  Speaker 1: To do with it? Yeah, I think it's very circumstantial,
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  Speaker 1: to be honest, It's hard to be directly clear. I mean,
• 1:10
  Speaker 1: there definitely will be some repaying debt. There might be
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  Speaker 1: some buying a new boat, there might be some renovating
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  Speaker 1: the batch. There might be some sort of reinvesting in
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  Speaker 1: there in their own businesses, if that's you know, maintenance
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  Speaker 1: or expansion. So I think it is it's difficult to preempt,
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  Speaker 1: but you know, it is at a time where as
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  Speaker 1: I mentioned, on farm profitability, even if you exclude this,
• 1:38
  Speaker 1: Fonterra return is sort of at or near record high,
• 1:42
  Speaker 1: So it's certainly good timing for farmers and for New
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  Speaker 1: Zealand more broadly.
• 1:48
  Speaker 2: Matt, what's your take on the you know, this big
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  Speaker 2: argument that this is a short term sugar hat. You know,
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  Speaker 2: Winston doesn't like it. I see I saw a piece
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  Speaker 2: from Sam Stubbs the other day saying it's it's a
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  Speaker 2: tactical wind but a strategic line. You know, we're not
• 2:00
  Speaker 2: looking to the long term.
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  Speaker 1: What do you think? Yeah, so I don't necessarily agree
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  Speaker 1: with that views. So our view is that we think
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  Speaker 1: it's a good idea that focuses Fonterra on what it's
• 2:15
  Speaker 1: done best historically, where it's higher returns are and I
• 2:19
  Speaker 1: think it's important to recognize essentially the counterfactual here. So
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  Speaker 1: what would it take for Fontierra to really unleash his business?
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  Speaker 1: And for us, that would be multiple billions of dollars
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  Speaker 1: in investment, and you know, Fonterra couldn't fund that itself,
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  Speaker 1: so joppling to take the path of returning the capital
• 2:40
  Speaker 1: and you know, I guess putting ownership in someone else's
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  Speaker 1: hands where they haven't been the highest value owner of
• 2:49
  Speaker 1: this business. And I think it's important to recognize that,
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  Speaker 1: you know, the Fontario has a lack of scale and
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  Speaker 1: consumer globally, and hints that that sort of investments would
• 2:59
  Speaker 1: be what it would take to really unleash his business,
• 3:03
  Speaker 1: to get it to a return on capital that would
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  Speaker 1: likely be not too much higher than what the rest
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  Speaker 1: of the business is doing currently. So we think it's
• 3:11
  Speaker 1: it's sensible.
• 3:12
  Speaker 2: Appreciate your time, Matt. Thank you, Matt Montgomery for South
• 3:15
  Speaker 2: Bar Senior Analyst Equities. For more from Early Edition with
• 3:19
  Speaker 2: Ryan Bridge, listen live to news talks. It'd be from
• 3:22
  Speaker 2: five am weekdays, or follow the podcast on iHeartRadio.