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 (00:00):
Now 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. Sand tris
that we have Milford Asset Managements with us to talk
us through today.

Speaker 2 (00:09):
Sam, Good evening, Heather, So.

Speaker 1 (00:11):
What do you make of the announcement?

Speaker 2 (00:13):
I yuess. 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

(00:34):
business around, 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 problem at Australian divisions into integrate them into the
appropriate New Zealand businesses. But the strategic review, essentially for

(00:58):
many listed companies, is about 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 it really was liked by
the market and there's a signal that there is more

(01:20):
to come. There's deals to be done here.

Speaker 1 (01:22):
So what do you think the shareholders are expecting as
outcomes from both a review and also the potential sales.

Speaker 2 (01:28):
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, Pigbacks etc.

(01:50):
Then remove the distractions, so these are the businesses that
really are at for sale, the Australian divisions which have
little or no contribution to the group in terms of
synergy 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.

(02:12):
So 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, Heather,
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 seem to fire.
So wait for that update in two weeks that what's
the market, that is what the market's looking for, and

(02:34):
anything along those lines I think will be well received.

Speaker 1 (02:37):
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 2 (02:47):
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 bus and divisions
and get get on with life essentially versus keeping the
buyers honest and make them pay a fair and reasonable price,

(03:09):
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 to have those conversations convinced buyers that you know
that they are not desperate saloes, 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 make

(03:32):
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 get that

(03:52):
better price.

Speaker 1 (03:53):
Sam, good to talk to you as always. Thank you, mate,
Sam Trau. We have Milfited Asset Management.

Speaker 2 (03:58):
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