Latest / Best of Business / Sam Trethewey: Milford Asset Management Portfolio Manager on Fletcher Building's strong day on the NZX

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Sam Trethewey: Milford Asset Management Portfolio Manager on Fletcher Building's strong day on the NZX · Best of Business

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  Speaker 2: It was a strong day for Fletcher building on the
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  Speaker 2: ins and X company announced it's been fielding a bit
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  Speaker 2: of interest for some of its businesses. Sam trus that
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  Speaker 2: we have Milford Asset Managements with us to talk us
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  Speaker 2: through day.
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  Speaker 3: Sam, good evening.
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  Speaker 2: He so, what do you make of the announcement?
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  Speaker 1: Oh?
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  Speaker 3: Yes, it certainly has been a big day for the
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  Speaker 3: Fletcher share price today after the news that it had
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  Speaker 3: received that ongoing and bound inquiry from interested parties for
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  Speaker 3: some of its businesses. So the market took it as
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  Speaker 3: a clear positive sign. The background to this is that
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  Speaker 3: the new CEO, Andrew Reading, who started in September last
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  Speaker 3: year and has been essentially tasked with turning the business around,
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  Speaker 3: has been undertaking a review of Fletcher's division since his appointment,
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  Speaker 3: reviewing what makes sense going forward and what is non
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  Speaker 3: core and could be divested or sold off. The first
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  Speaker 3: outcome of this last month was announced when the company said, look,
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  Speaker 3: we're going to move some of our problematic Australian divisions
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  Speaker 3: into so integrate them into the appropriate new Zealand businesses.
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  Speaker 3: But the strategic review essentially for many listed companies is
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  Speaker 3: about really putting up a for sale sign for parts
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  Speaker 3: of his business. And Andrew has been pretty cautious on
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  Speaker 3: his comments about what the outcomes could be. But today
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  Speaker 3: to here, look they're receiving ongoing in particular inquiry, implying
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  Speaker 3: just not one or two buyers, but a good level
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  Speaker 3: of interest. I think really was liked by the market
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  Speaker 3: and there's a signal that there is more to come.
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  Speaker 3: There's deals to be done here.
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  Speaker 2: So what do you think the shareholders are expecting as
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  Speaker 2: outcomes from both a review and also the potential sales.
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  Speaker 3: So the shareholders are set to receive an update in
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  Speaker 3: two weeks time, and I think at the high level
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  Speaker 3: most want to see the business really refocus on its core,
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  Speaker 3: so where the profit has been driven Australia historically in
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  Speaker 3: New Zealand's building products and in distribution. And there's some
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  Speaker 3: very strong, well positioned businesses within those division divisions off
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  Speaker 3: which is so the likes of Winstone, world Wards, Pigbags etc.
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  Speaker 3: Then remove the distract. So these are the businesses that
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  Speaker 3: really are for sale. The Australian divisions which have little
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  Speaker 3: or no contribution to the group in terms of synergies
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  Speaker 3: and or profitability, and then get rid of some of
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  Speaker 3: the lower margin, risky divisions like that construction piece. So
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  Speaker 3: it was interesting today to actually see buyer interests called
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  Speaker 3: out for that construction division specifically within the release. So
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  Speaker 3: it does have it that that division does have a
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  Speaker 3: reasonable pipeline of roading and infrastructure work ahead. And I
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  Speaker 3: know how much you like a road cone head, but
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  Speaker 3: it has been a clear source of clear loss of
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  Speaker 3: losses and as in the courts with SkyCity at the
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  Speaker 3: moment for that lawsuit read the convention center fire. So
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  Speaker 3: wait for that update in two weeks that what's the market,
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  Speaker 3: that is what the market's looking for, and anything along
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  Speaker 3: those lines I think will be well received.
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  Speaker 2: Now, I mean, obviously it's been, it's been a business
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  Speaker 2: that I think we could say has been is fairly beleagued.
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  Speaker 2: How do you how hard do you think this task
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  Speaker 2: is going to be to execute this turnaround?
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  Speaker 3: Not straightforward and short, and I think it will take time.
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  Speaker 3: So the challenge for Andrew Man as management team really
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  Speaker 3: is to manage that that conflict they have around the
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  Speaker 3: desire to exit and sell off the business divisions and
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  Speaker 3: get get on with life essentially versus keeping the buyers
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  Speaker 3: honest and make them pay a fair and reasonable price.
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  Speaker 3: You know, when you do put that for sale, sign
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  Speaker 3: up through a strategic review, I think often by pricing
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  Speaker 3: expectations and naturally fall, so they'll be out there having
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  Speaker 3: trying trying to have those conversations convinced buyers that you
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  Speaker 3: know that they are not desperate sealers, that they're more
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  Speaker 3: opportunistic at times. And on top of that, really I
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  Speaker 3: think the economic conditions which we've all been dealing with
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  Speaker 3: make the conversation not as easy in terms of the
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  Speaker 3: profitability being just depressed for many of these divisions that
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  Speaker 3: will be up up for grabs. So look, the opportunity
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  Speaker 3: is there. The trade off which the management team are
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  Speaker 3: really facing is do we do something now and potentially
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  Speaker 3: cheaper We'll hold on for a couple of years and
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  Speaker 3: wait for those economic conditions to improve and try and
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  Speaker 3: get that bit of price.
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  Speaker 2: Sam, good to talk to you as always. Thank you, mate,
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  Speaker 2: Sam Trathui of milfit Aset Management.
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