Matt Montgomerie: Forsyth Barr Senior Analyst on Fonterra proposed sale

New Zealand's economy could look to benefit from Fonterra’s proposed sale.

The proposed sale of Anchor and Mainland brands to French company Lactalis could unlock around 4.5 billion in additional spending.

Forsyth Barr Senior Analyst Matt Montgomerie shares his thoughts. 

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Episode Transcript

Speaker 1 (00:00):
Can.

Speaker 2 (00:00):
New ASP report out this morning says Fonterra's plan to
sell its retail brands could unlock four and a half
billion in extra spending across the economy. Half of it
two point two would flow into manufacturing retail real estate.
The average farmer return could hit almost four hundred k.
Matt Montgomery is full sith by senior analyst Equities with
me this morning. Matt, good morning, Good morning.

Speaker 1 (00:19):
Rans.

Speaker 2 (00:20):
Does this sound about right to you?

Speaker 1 (00:23):
Well, I think if you consider the total payment that
farmers are getting, it's around three point two, and I
think you'd naturally expect some border flow through to the
border economy, particularly when you consider it had a time
where on farm returns are pretty healthy and possibly at

(00:44):
record level. So there clearly things are a little bit
tougher in the urban economy. So hopefully we see some
pull through across border New Zealand.

Speaker 2 (00:53):
We're all hoping to bludge off it, aren't we. What
the argument was of that farmers will take it and
pay down debt is that, you know, how do we
figure out what they want.

Speaker 1 (01:02):
To do with it? Yeah, I think it's very circumstantial,
to be honest, It's hard to be directly clear. I mean,
there definitely will be some repaying debt. There might be
some buying a new boat, there might be some renovating
the batch. There might be some sort of reinvesting in
there in their own businesses, if that's you know, maintenance

(01:27):
or expansion. So I think it is it's difficult to preempt,
but you know, it is at a time where as
I mentioned, on farm profitability, even if you exclude this,
Fonterra return is sort of at or near record high,
So it's certainly good timing for farmers and for New

(01:47):
Zealand more broadly.

Speaker 2 (01:48):
Matt, what's your take on the you know, this big
argument that this is a short term sugar hat. You know,
Winston doesn't like it. I see I saw a piece
from Sam Stubbs the other day saying it's it's a
tactical wind but a strategic line. You know, we're not
looking to the long term.

Speaker 1 (02:02):
What do you think? Yeah, so I don't necessarily agree
with that views. So our view is that we think
it's a good idea that focuses Fonterra on what it's
done best historically, where it's higher returns are and I
think it's important to recognize essentially the counterfactual here. So

(02:24):
what would it take for Fontierra to really unleash his business?
And for us, that would be multiple billions of dollars
in investment, and you know, Fonterra couldn't fund that itself,
so joppling to take the path of returning the capital
and you know, I guess putting ownership in someone else's

(02:45):
hands where they haven't been the highest value owner of
this business. And I think it's important to recognize that,
you know, the Fontario has a lack of scale and
consumer globally, and hints that that sort of investments would
be what it would take to really unleash his business,
to get it to a return on capital that would

(03:06):
likely be not too much higher than what the rest
of the business is doing currently. So we think it's
it's sensible.

Speaker 2 (03:12):
Appreciate your time, Matt. Thank you, Matt Montgomery for South
Bar Senior Analyst Equities. For more from Early Edition with
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