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

The NZ sharemarket lifted today as Fletcher Building announced it had received inquiries from parties interested in buying its businesses.

The S&P/NZX 50 Index closed up 0.33% or 41.51 points, rising to 12,605.93, with 39,702,689 shares changing hands to the value of $139.77 million.

Milford Asset Management's Sam Trethewey explains further.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:17):
It was a strong day for Fletcher building on the
ins and X company announced it's been fielding a bit
of interest for some of its businesses. Sam trus that
we have Milford Asset Managements with us to talk us
through day.

Speaker 3 (00:26):
Sam, good evening.

Speaker 2 (00:27):
He so, what do you make of the announcement?

Speaker 1 (00:30):
Oh?

Speaker 3 (00:30):
Yes, it certainly has been a big day for the
Fletcher share price today after the news that it had
received that ongoing and bound inquiry from interested parties for
some of its businesses. So the market took it as
a clear positive sign. The background to this is that
the new CEO, Andrew Reading, who started in September last
year and has been essentially tasked with turning the business around,

(00:53):
has been undertaking a review of Fletcher's division since his appointment,
reviewing what makes sense going forward and what is non
core and could be divested or sold off. The first
outcome of this last month was announced when the company said, look,
we're going to move some of our problematic Australian divisions
into so integrate them into the appropriate new Zealand businesses.
But the strategic review essentially for many listed companies is

(01:16):
about really putting up a for sale sign for parts
of his business. And Andrew has been pretty cautious on
his comments about what the outcomes could be. But today
to here, look they're receiving ongoing in particular inquiry, implying
just not one or two buyers, but a good level
of interest. I think really was liked by the market
and there's a signal that there is more to come.

(01:37):
There's deals to be done here.

Speaker 2 (01:39):
So what do you think the shareholders are expecting as
outcomes from both a review and also the potential sales.

Speaker 3 (01:45):
So the shareholders are set to receive an update in
two weeks time, and I think at the high level
most want to see the business really refocus on its core,
so where the profit has been driven Australia historically in
New Zealand's building products and in distribution. And there's some
very strong, well positioned businesses within those division divisions off
which is so the likes of Winstone, world Wards, Pigbags etc.

(02:07):
Then remove the distract. So these are the businesses that
really are for sale. The Australian divisions which have little
or no contribution to the group in terms of synergies
and or profitability, and then get rid of some of
the lower margin, risky divisions like that construction piece. So
it was interesting today to actually see buyer interests called
out for that construction division specifically within the release. So

(02:29):
it does have it that that division does have a
reasonable pipeline of roading and infrastructure work ahead. And I
know how much you like a road cone head, but
it has been a clear source of clear loss of
losses and as in the courts with SkyCity at the
moment for that lawsuit read the convention center fire. So
wait for that update in two weeks that what's the market,
that is what the market's looking for, and anything along

(02:51):
those lines I think will be well received.

Speaker 2 (02:54):
Now, I mean, obviously it's been, it's been a business
that I think we could say has been is fairly beleagued.
How do you how hard do you think this task
is going to be to execute this turnaround?

Speaker 3 (03:04):
Not straightforward and short, and I think it will take time.
So the challenge for Andrew Man as management team really
is to manage that that conflict they have around the
desire to exit and sell off the business divisions and
get get on with life essentially versus keeping the buyers
honest and make them pay a fair and reasonable price.

(03:26):
You know, when you do put that for sale, sign
up through a strategic review, I think often by pricing
expectations and naturally fall, so they'll be out there having
trying trying to have those conversations convinced buyers that you
know that they are not desperate sealers, that they're more
opportunistic at times. And on top of that, really I
think the economic conditions which we've all been dealing with

(03:48):
make the conversation not as easy in terms of the
profitability being just depressed for many of these divisions that
will be up up for grabs. So look, the opportunity
is there. The trade off which the management team are
really facing is do we do something now and potentially
cheaper We'll hold on for a couple of years and
wait for those economic conditions to improve and try and

(04:09):
get that bit of price.

Speaker 2 (04:10):
Sam, good to talk to you as always. Thank you, mate,
Sam Trathui of milfit Aset Management.

Speaker 1 (04:14):
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