1 00:00:00,000 --> 00:00:00,120 Speaker 1: Can. 2 00:00:00,160 --> 00:00:02,720 Speaker 2: New ASP report out this morning says Fonterra's plan to 3 00:00:02,759 --> 00:00:04,960 Speaker 2: sell its retail brands could unlock four and a half 4 00:00:05,040 --> 00:00:07,720 Speaker 2: billion in extra spending across the economy. Half of it 5 00:00:07,800 --> 00:00:11,080 Speaker 2: two point two would flow into manufacturing retail real estate. 6 00:00:11,119 --> 00:00:13,800 Speaker 2: The average farmer return could hit almost four hundred k. 7 00:00:14,360 --> 00:00:17,200 Speaker 2: Matt Montgomery is full sith by senior analyst Equities with 8 00:00:17,239 --> 00:00:19,680 Speaker 2: me this morning. Matt, good morning, Good morning. 9 00:00:19,760 --> 00:00:20,080 Speaker 1: Rans. 10 00:00:20,120 --> 00:00:21,600 Speaker 2: Does this sound about right to you? 11 00:00:23,600 --> 00:00:27,120 Speaker 1: Well, I think if you consider the total payment that 12 00:00:27,240 --> 00:00:30,560 Speaker 1: farmers are getting, it's around three point two, and I 13 00:00:30,600 --> 00:00:34,400 Speaker 1: think you'd naturally expect some border flow through to the 14 00:00:34,440 --> 00:00:38,600 Speaker 1: border economy, particularly when you consider it had a time 15 00:00:38,680 --> 00:00:44,199 Speaker 1: where on farm returns are pretty healthy and possibly at 16 00:00:44,320 --> 00:00:47,599 Speaker 1: record level. So there clearly things are a little bit 17 00:00:47,640 --> 00:00:50,519 Speaker 1: tougher in the urban economy. So hopefully we see some 18 00:00:51,240 --> 00:00:53,400 Speaker 1: pull through across border New Zealand. 19 00:00:53,440 --> 00:00:55,680 Speaker 2: We're all hoping to bludge off it, aren't we. What 20 00:00:56,840 --> 00:00:58,840 Speaker 2: the argument was of that farmers will take it and 21 00:00:58,880 --> 00:01:01,200 Speaker 2: pay down debt is that, you know, how do we 22 00:01:01,280 --> 00:01:03,120 Speaker 2: figure out what they want. 23 00:01:02,920 --> 00:01:07,480 Speaker 1: To do with it? Yeah, I think it's very circumstantial, 24 00:01:07,520 --> 00:01:10,319 Speaker 1: to be honest, It's hard to be directly clear. I mean, 25 00:01:10,600 --> 00:01:14,200 Speaker 1: there definitely will be some repaying debt. There might be 26 00:01:14,280 --> 00:01:17,880 Speaker 1: some buying a new boat, there might be some renovating 27 00:01:17,920 --> 00:01:21,560 Speaker 1: the batch. There might be some sort of reinvesting in 28 00:01:21,600 --> 00:01:26,760 Speaker 1: there in their own businesses, if that's you know, maintenance 29 00:01:27,200 --> 00:01:31,600 Speaker 1: or expansion. So I think it is it's difficult to preempt, 30 00:01:31,800 --> 00:01:34,080 Speaker 1: but you know, it is at a time where as 31 00:01:34,120 --> 00:01:37,840 Speaker 1: I mentioned, on farm profitability, even if you exclude this, 32 00:01:38,000 --> 00:01:42,119 Speaker 1: Fonterra return is sort of at or near record high, 33 00:01:42,200 --> 00:01:47,160 Speaker 1: So it's certainly good timing for farmers and for New 34 00:01:47,280 --> 00:01:48,600 Speaker 1: Zealand more broadly. 35 00:01:48,440 --> 00:01:51,120 Speaker 2: Matt, what's your take on the you know, this big 36 00:01:51,200 --> 00:01:53,880 Speaker 2: argument that this is a short term sugar hat. You know, 37 00:01:53,920 --> 00:01:56,200 Speaker 2: Winston doesn't like it. I see I saw a piece 38 00:01:56,200 --> 00:01:58,200 Speaker 2: from Sam Stubbs the other day saying it's it's a 39 00:01:58,240 --> 00:02:00,680 Speaker 2: tactical wind but a strategic line. You know, we're not 40 00:02:00,720 --> 00:02:02,080 Speaker 2: looking to the long term. 41 00:02:02,120 --> 00:02:06,800 Speaker 1: What do you think? Yeah, so I don't necessarily agree 42 00:02:06,840 --> 00:02:11,840 Speaker 1: with that views. So our view is that we think 43 00:02:11,919 --> 00:02:15,760 Speaker 1: it's a good idea that focuses Fonterra on what it's 44 00:02:15,760 --> 00:02:19,920 Speaker 1: done best historically, where it's higher returns are and I 45 00:02:19,960 --> 00:02:23,480 Speaker 1: think it's important to recognize essentially the counterfactual here. So 46 00:02:24,120 --> 00:02:27,240 Speaker 1: what would it take for Fontierra to really unleash his business? 47 00:02:27,320 --> 00:02:31,000 Speaker 1: And for us, that would be multiple billions of dollars 48 00:02:31,000 --> 00:02:35,799 Speaker 1: in investment, and you know, Fonterra couldn't fund that itself, 49 00:02:36,120 --> 00:02:40,200 Speaker 1: so joppling to take the path of returning the capital 50 00:02:40,280 --> 00:02:45,720 Speaker 1: and you know, I guess putting ownership in someone else's 51 00:02:45,760 --> 00:02:49,320 Speaker 1: hands where they haven't been the highest value owner of 52 00:02:49,360 --> 00:02:52,000 Speaker 1: this business. And I think it's important to recognize that, 53 00:02:53,320 --> 00:02:55,760 Speaker 1: you know, the Fontario has a lack of scale and 54 00:02:55,880 --> 00:02:59,839 Speaker 1: consumer globally, and hints that that sort of investments would 55 00:02:59,880 --> 00:03:03,240 Speaker 1: be what it would take to really unleash his business, 56 00:03:03,240 --> 00:03:05,360 Speaker 1: to get it to a return on capital that would 57 00:03:06,120 --> 00:03:08,960 Speaker 1: likely be not too much higher than what the rest 58 00:03:08,960 --> 00:03:11,280 Speaker 1: of the business is doing currently. So we think it's 59 00:03:11,440 --> 00:03:12,200 Speaker 1: it's sensible. 60 00:03:12,960 --> 00:03:15,359 Speaker 2: Appreciate your time, Matt. Thank you, Matt Montgomery for South 61 00:03:15,400 --> 00:03:18,920 Speaker 2: Bar Senior Analyst Equities. For more from Early Edition with 62 00:03:19,040 --> 00:03:22,040 Speaker 2: Ryan Bridge, listen live to news talks. 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