Taking Stock 11 September 2025

ONE of the great anomalies of the NZ sharemarket is that it has narrow exposure to the one sector where NZ has a global comparative advantage – the food sector.

Yes, one can and maybe should, buy into the dairy industry via the now-restored Fonterra Group and the impressively resilient a2 Milk Company.

One can buy into horticultural growers and exporters like Seeka and Scales, and agricultural suppliers like PGG Wrightson and Skellerup are in the sector, Skellerup an impressive company.

Back in the day, we had many others like Canterbury Frozen Meats, Southland Frozen Meats, NZ Light Leathers, Affco, and the Gear Meat Company.

May I even recall bravely the ambitious company Fortex, which was poorly governed, had inadequate capital, and allowed its stifled ambitions to lead to some fairytale communications that destroyed banking and investor confidence.

All those meat processors have left the NZX, and we now observe the Alliance Group losing control to a foreign buyer because of a mix of poor governance, lack of access to capital, and poor management.

The retail investors wanting to invest in the meat sector have very few options, the unlisted syndicators unable to provide liquidity, and unlikely to attract investors who would support with capital their syndicates in the inevitable tough years.

All of these thoughts will be relevant now, after a season when pasture was adequate, international demand was high, and profitability, at last, was ample.

To put into perspective: lamb and beef are in good global demand, prices up around 20%, US new tariffs yet to bite, and even wool is now attracting prices that more or less cover the cost of shearing.

Fertiliser prices are up. What a shame Chatham Rock phosphate is not being allowed to provide better, cheaper phosphates.

Velvet has had a tough year. Globally pork prices are stable, chicken prices down. Beef prices have been increasing after farmers in various beef exporting countries were forced by droughts to rebuild their numbers.

All of this would encourage me to invest, if there were obvious options.

But the real impediment relates not to demand, costs or prices, not even the basically stupid intervention by bureaucracy during previous years, when Wellington administrators felt obligated to teach farmers how to farm, i.e., not to let young bulls onto sloping paddocks (I am not jesting!). Perhaps there are still desk-bound bureaucrats who believe that there are farmers who do not understand the need to look after waterways and pasture.

The real handbrake on the sector that often underwrites our national living standards is the dwindling numbers of our flock of ewes, which may be linked to the idiotic focus on using arable land to plant essentially low-margin trees, enabling many overseas investors to earn carbon credits from our good land.

In 1974, Prime Minister Muldoon oversaw what was called SMPs, that is, Supplementary Minimum Prices, to top up farming income, encouraging sheep farmers to use marginal land, often hilly land, to grow our ewe populations.

I recall NZ having over 70 million sheep.

It was in the 1980s when Roger Douglas fought the mentality of subsidies and SMPs ended.

We had 70 million sheep and maybe a few million more than 70 million lambs, lambing percentages in those days much less than they are today, as genetics and other interventions have lifted birth rates. Lambs were often worth $10. Wool had value.

Today, according to the sector’s statisticians, we have just 14.5 million breeding ewes, producing lambs with high reproduction rates, maybe a total around 22 million lambs.

Right now farmers are getting close to $10 per kilogram for lambs, so somewhere between $150 and $300 a lamb, until peak production in January swamps the market.

Imagine the difference of export lamb receipts if our flock was producing an extra 30 million lambs. Three billion dollars, maybe double that.

Beef is similarly in demand.

We can applaud our magnificent farmers as we applaud the dairy sector, but our numbers are nowhere near optimal.

We grow useless, toxic, pine trees for carbon credits.

Land is graded in terms of its productiveness; law restricts using the best land for trees.

Poorer land is not constrained.

Why are we using any of the land graded prime, or near prime, for pine trees?

As an investor, my admiration for our highly productive farming sector is immense.

Restructured Fonterra and the innovative a2 Milk are worthy opportunities for investors in listed securities.

Where is the red meat opportunity?

I applaud the new government initiative to encourage the use of wool. Wool may eventually be profitable again.

The late Allan Hubbard would have loudly applauded that. He knew that NZ needed a strong agriculture base.

I return to the beginning.

Why do we not find it straightforward to raise the capital from investors and fund managers to enable the country to grow its resources, dramatically improve exports, and exploit the clear comparative advantage we have?

Rainfall, temperate climate, ample arable pasture and a huge capacity to increase our stock numbers without destruction of our environment would be a gigantic comparative advantage, rainfall being the key.

Fonterra has made the right decision to remove a high-cost, low-margin, branding focus, sensibly ignoring those who regurgitate textbooks written for other countries, as rural industry leaders try to explain to peacocks and peahens chasing media headlines.

Do we need a Muldoon-like mindset to create opportunities for those with money, or those who manage other people’s money, enabling them to grow our economy based on a comparative advantage?

Are we still listening to the likes of the late David Lange, who believed 40 years ago that agriculture was a “sunset” industry?

Are we going to eat trees? Bring back ewes!

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THE recent retirement from Massey University of Professor David Tripe ends the career of a rare academic with genuine banking knowledge and experience.

Tripe worked in banking before pursuing an academic career and joins a very short list of university academics with enough practical knowledge and experience to be relevant to financial markets and investors.

Years ago, Graeme Fogelberg at Dunedin made useful contributions, Claire Matthews at Massey (a protégé of Tripe) has great value, and many of my age group had huge respect for Don Trow, at Victoria University, whose accounting knowledge and ethical standards made him a hero.

Auckland University now has a fearless and practical economist in Robert MacCulloch. No doubt there are others, like Martin Devlin, who bridged the public and private sectors, and very likely there will be others whose contributions were neither boringly political or irrelevant to business and investors.

Tripe was a great contributor, somehow coaxing reporters to record relevant issues, politely explaining to the uninitiated why his knowledge should be shared.

The media, as much as financial market participants, should pay tribute to him. Although a slightly impeded speaker, he studied, analysed and communicated, and left any political bias in his briefcase.

Sadly, universities rarely retain such people. Many just preach the version of socialism that has succeeded nowhere.

The government should seek whatever energy Tripe still has, to exploit his knowledge.

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IT IS 92 years since the admirable Fulton Hogan infrastructural construction company was founded in Dunedin.

Today, some one hundred (plus) Fulton family members own around 20% of the company while the Hogan descendants, smaller in number, retain a similar holding.

Past and present executives and managers have wisely taken up much of the remaining shares. They will soon collect the final dividend of 69 cents per share making this year’s dividend $1.31, the dividend pool some 50% of nett profit after tax.

Fulton Hogan is a public but unlisted company, meaning its share value is not set by the market but by the board which offers to buy back shares each year at a set price, the current price $34.80, an increase from the offered price last year of around $31.00.

It operates in Australia and New Zealand and is familiar to many because of its high-profile (often obtrusive) worker safety trucks that follow the roading and traffic management work it does.

As far back as 2013 its nett profit after tax was in the hundreds of millions. It still is.

How the NZX must wish Fulton Hogan was an NZX-listed company. Its capital value would be several billion, despite being in a sector that has seen other family-created companies (Fletchers, anyone?) whose family descendants failed dismally, destroying value.

Fletchers, so well politically connected in the days of Sir James Fletcher, made the classic error of allowing an arrogant family member to run the company like a dynasty, disconnecting with the company’s governance and destroying value, despite the company having many excellent managers, with real skill in managing projects.

Eventually a guileless board appointed Mark Adamson and allowed him enough freedom to all but destroy the company.

Fulton Hogan remains an icon, having developed a great modern base when it was chaired by the wise, old-fashioned, cashflow savvy business leader, Ian Farrant, who must now be in his 80s.

NZ needs strong companies in construction.

Many, like Mainzeal and Hawkins, made the error of engaging incompetent governors, grossly over-using debt, misunderstanding the importance of capital and cashflow, often lacking transparency and eventually losing their gloss, their governors absent of industry knowledge.

The sub-contractors always know.

Talk to any long surviving sub-contractors and they will tell you that they would work for Fulton Hogan, expecting to be paid and treated commercially.

Long ago I learned that before investing in the sector, one needed to gain access to what the subbies knew.I recall in detail what the owner of one such successful company told me.

“We learned never to sub-contract for Mainzeal, or Hawkins. We simply declined to be involved.”

“Fletchers wanted 90 days to meet monthly invoices. No thanks.”

“When the prime contractors are using subbies as their source of capital and cashflow, move away. Don’t even bid for any contract they offer.”

“The same applies to those who hold bogus retentions.”

Fulton Hogan has survived 92 years and still makes hundreds of millions, enabling it to pay meaningful dividends.

It deserves the nation’s respect, despite those infernal witches’ hats and the ridiculous over control of traffic control trucks.

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IF investors and motorists enjoy a quiz, try this one.

Guess which company is on the transport safety council which advises governments on what is needed to minimise danger to road workers and traffic.

Guess which company also owns the supply of orange cones.

Orange cones, I am told, are hired out at a projected cost to councils and governments of around $7 a day per cone.

Ultimately taxpayers and motorists pay for this cost.

Clue for the quiz: one major construction company supplies advice and the cones. That company is not Fulton Hogan.

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New Issue

Investore Property Limited (IPL) has launched an offer of 4-year convertible notes maturing on 26 September 2029.

The notes will provide quarterly interest payments at a rate that has yet to be determined but is forecast in the vicinity of 5.50%.

On maturity, the Notes will either: convert into Investore shares at a 2% discount to the market price at that time, subject to a cap of $1.56 per share, or be repaid in cash at Investore's discretion.

Noteholders will receive a minimum value of approximately $1.02 for every $1.00 invested, with potential to benefit further if the share price is above $1.56 at conversion.

The minimum investment size is $5,000.

Clients will not be charged brokerage.

The General Offer closes on Friday, 19 September 2025 and the Shareholder Priority Offer (open to existing IPL shareholders) closes on Tuesday, 23 September 2025.

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Travel

24 September – Lower Hutt – Fraser Hunter

24 September – Napier – Edward Lee

30 September – Taupo – Johnny Lee

1 October – Hamilton – Johnny Lee (full)

3 October – Tauranga – Johnny Lee (morning full, afternoon only)

7 October – Palmerston North – David Colman

8 October – Christchurch – Johnny Lee (full)

Chris Lee and Partners Limited