Chris Lee & Partners Ltd

Taking Stock 25 September 2025

Edward Lee writes:

Auckland Airport is one of New Zealand’s most important infrastructure assets. It is the gateway to New Zealand with over 18.7 million passengers moving through the airport last year alone.

But for shareholders, it has been a frustrating share to own.

In 2020, when international passenger numbers were virtually nil, its share price was around $7.00. Five years later, after billions of dollars of capital expenditure and passenger numbers returning to 89% of pre-COVID levels, it trades at just $7.70.

Dividends over the 5-year period have struggled too. The current gross dividend yield is just 2.35%, and there were years during COVID when dividends stopped.

With passenger growth stalled, the real earnings uplift has come from its commercial property portfolio. Rental income has climbed to almost $200 million per year. Five years ago, that figure was closer to $100 million. Property is an essential part of Auckland Airport’s earnings story.

At the same time, the airport is in the middle of the largest capital programme in its history. The ten-year spend was originally estimated at $6.6 billion, with the centrepiece being the new domestic terminal, finally replacing the 57-year-old building and integrating it with the international terminal. 

This is due to be completed in four years’ time. 

Once finished, the focus will turn to the planned replacement of the main runway slabs. These projects will reshape the airport for decades, but shareholders are footing the bill now while the benefits will not flow through fully until several years down the track.

Given the scale of this investment, regulators are watching closely. 

The Commerce Commission has already challenged the airport’s targeted return on assets, concluding that its proposed price increase would result in roughly $200 million in “excess profit” over the current five-year regulatory period. 

In response to scrutiny, Auckland Airport adjusted its proposed passenger charge increase.

The way the airport depreciates its assets has also raised questions. Using straight-line depreciation means today’s passengers carry a heavier share of the cost for infrastructure that will last decades. 

A more gradual approach could spread the cost more evenly. These debates are technical, but they directly affect how much airlines and travellers pay, and how quickly the airport can recover its investment.

Guidance for FY26 earnings landed below market expectations, with underlying profit forecast at $280 to $320 million, about $20 million shy of what analysts had expected. 

The reasons are clear. Air New Zealand’s fleet and engine limitations are restricting seat supply, the domestic economy is weak, and construction across the airport is disruptive. 

Analysts expect a dip in FY26 before recovery in FY28 as new infrastructure comes online and more capacity is restored.

Traffic data tells the same story. 

In FY25, total passenger movements rose 1.1% to 18.7 million, with international passengers up 2.5% to 10.3 million and domestic slightly lower at 8.4 million. 

Monthly updates confirm the sluggish recovery. 

In August 2025, international passenger movements rose just 1% from the year before, despite seat capacity increasing 4%. 

Queenstown Airport, part-owned by Auckland Airport, was the standout, setting another record with 106,000 international passengers in a single month.

The global backdrop helps explain this. 

Airlines are still rationing scarce aircraft and deploying them on the most profitable routes. This is why new route announcements matter. 

China Eastern has announced a Shanghai to Auckland to Buenos Aires service starting in December 2025, restoring some of the missing connectivity to South America. 

Domestically, Jetstar has grown its Auckland capacity, helping offset Air New Zealand’s engine-related constraints. 

Even so, bottlenecks in aircraft supply and a weak economy will cap passenger growth in the short term.

Financially, Auckland Airport’s revenue climbed 12% to $1 billion in FY25, and underlying profit rose 12% to $310 million, with a slight reduction in debt following last year’s $1.4 billion equity raise. 

Capital expenditure is set to remain heavy, between $1 and $1.3 billion in FY26 which will lift debt significantly over the next 12 months as the investment programme accelerates. 

With the average cost of its debt at 5.50%, interest costs are about $72 million per year, but are expected to exceed $100 million as borrowings climb by billions over the coming years

However, the picture is not entirely one-sided. The airport also earns income from the cash it holds on deposit, meaning net interest costs are likely to be somewhat lower than the headline figures suggest. Even so, interest will remain a larger slice of the expense line than in the past.

One part of the business that deserves more attention is its investment property portfolio. 

This has now reached a valuation of $3.4 billion, generating $192 million in rent with 99% occupancy and a weighted average lease term of nearly nine years. 

These non-aeronautical earnings are significant. They diversify revenue and should grow as new developments are completed.

With flagship projects like Mānawa Bay and The Landing, property income is now a core contributor to Auckland Airport’s earnings profile.

The key question for investors is whether the payoff is worth the wait.

Over the past eight years, Auckland Airport has delivered little capital growth while spending enormous sums. That pattern is likely to continue until major projects are complete.

Once the new terminal is open, the airfield expanded, and international connections restored, the business will be able to process more passengers, charge more per traveller, and generate stronger returns. Investors may find more attractive entry points by waiting until earnings momentum improves and the benefits of this spend are clearer.

In my view, Auckland Airport remains an asset worth watching closely.

The capital programme is disruptive, dividends are modest, and regulatory scrutiny will not go away. 

But the airport is a scarce monopoly asset that New Zealand relies on, with a property arm that adds resilience and a balance sheet structured to handle the spend. Passenger demand is recovering, connectivity is broadening, and the transformation now underway will leave the airport in a stronger position for decades to come. 

For investors who think long term, it is hard not to see Auckland Airport being better placed in the future than it is today.

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ANOTHER core infrastructure business in New Zealand is EBOS. 

EBOS has grown since the early 1900s from a small Christchurch pharmacy supplier into Australasia’s largest healthcare and animal care distributor. 

More than a hundred years later it employs over 5,000 people, operates across New Zealand, Australia and Southeast Asia, and generates more than A$12 billion in annual revenue. 

That makes it one of the most significant New Zealand companies on both sides of the Tasman.

EBOS is not a speculative stock. It is the leading pharmaceutical wholesaler in Australia and New Zealand and one of the largest distributors of specialty medicines. 

It earns its revenue from distributing products to pharmacies and hospitals, from running a pharmacy chain in Australia, supplying specialty hospital medicines, and from selling pet food through Black Hawk and Vitapet. 

It is one of the few companies that straddles both healthcare and animal care. 

These are industries that keep growing regardless of whether the economy is booming or shrinking. That mix of resilience is what has allowed EBOS to keep compounding for over a century.

Its TerryWhite network has grown to more than 620 stores, filling over 1.2 million prescriptions online. 

On the animal care side, Black Hawk and Vitapet are entrenched brands in the pet specialty channel. SVS Veterinary Supplies, acquired earlier this year, strengthened its wholesale position in New Zealand. And the purchase of Next Generation Pet Foods gives EBOS an entry into the high-growth area of premium air-dried pet treats.

Looking back over the past decade, it was defined by consistent growth. FY22 and FY23 showed how fast EBOS can move when conditions line up, with revenue breaking A$10 billion for the first time.

Underlying earnings in FY23 lifted more than 30 percent, net profit by over 20 percent, and dividends by nearly 15 percent. 

Investors grew accustomed to that sort of acceleration.

Since then the pace has slowed. FY24 and FY25 were reset years. The Chemist Warehouse contract in Australia expired, taking out a big block of volume. At the same time EBOS was spending heavily on renewing its distribution centres.

The FY25 result was strong given those headwinds. Underlying revenue grew 12 percent once the Chemist Warehouse exit was taken out.

Community pharmacy delivered strong growth, adding 320 new wholesale customers and around A$385 million of revenue. 

Animal Care revenue increased 16 percent, while SVS and Next Generation added new channels.

The balance sheet remains conservative, with low net debt. 

Five acquisitions in FY25 cost A$210 million and are expected to add A$330 million in revenue on a full year basis. 

The distribution centre programme will be complete in FY26, expanding capacity by 20 percent, improving refrigeration for specialty medicines like GLP1s, while reducing costs. 

Despite this operational delivery, the share price fell significantly from $37.34 at the start of the year to now $29.50, down 20 percent. 

Over this same time period, the leadership changed, with long serving CEO John Cullity retiring in July. 

EBOS also raised equity to fund acquisitions, and these events, combined with slower growth, gave some investors reasons to sell and caused analysts to shift their tone. 

Earlier this year EBOS was being described as a growth company benefiting from strong pharmaceutical expenditure, favourable regulation and excellent bolt on acquisitions.

Commentary now describes EBOS as going sideways, not as a fault of the company, but as part of the cycle of a business that grows through acquisitions.

Instead of focusing on 20 percent growth, the company is aiming for 5 to 10 percent. 

That perspective helps explain the share price.

What I see is a company still doing all the right things. It is adding customers, expanding pharmacy networks, growing in most markets, broadening its animal care portfolio, and finishing its core infrastructure development programme.

It is producing strong cash flows, paying steady dividends, and keeping its balance sheet in check.

But the new CEO needs to prove himself. Competition in pharmacy is fierce, and consumer pressures are softening discretionary spending.

These are real, but manageable. They do not change the larger forces at play, but they are short term.

Populations are ageing. Specialty medicines are growing and community pharmacies are delivering more health services, all whilst pet spending continues to rise.

EBOS is well positioned in all of these areas.

It is true that the next year or two will not be exciting. Guidance for FY26 is for earnings growth of 5 to 10 percent which is steady rather than spectacular.

But in FY27 the distribution centre renewal will be completed and acquisitions like Transmedic, SVS and Next Generation will be fully embedded. 

That is when growth should pick up again.

Remember, buying quality companies is about owning businesses with long term demand, sound balance sheets, and the ability to keep growing.

EBOS ticks all those boxes.

The share price has fallen because expectations were too high and have now been reset. 

EBOS is not the sort of stock that will double in a hurry but what it will do is continue to distribute medicines and products, grow its pharmacy chain, sell pet food, generate cash, and pay dividends.

Long term investors interested in resilient, defensive businesses, should take note. For our business, quality and resilience are key words when we evaluate a portfolio.

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Travel Dates

30 September – Taupo – Johnny Lee (full)

1 October – Hamilton – Johnny Lee (full)

3 October – Tauranga – Johnny Lee (full)

7 October – PalmerstonNorth – David Colman

8 October – Christchurch – Johnny Lee (full)

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee24 October – Nelson – Edward Lee

Edward Lee

Chris Lee & Partners Ltd

Taking Stock - 18 September 2025

“Far from collapsing, the economy is laying the groundwork for recovery.” That was the message from four of the country’s leading chief economists at a conference David and I attended in Auckland. I was struck by how different their tone was from the headlines.

Confidence is in short supply and reports of bankruptcies, unemployment, and people heading across the Tasman don’t help. Yet the fundamentals tell a different story. Household incomes have been rising, our agriculture and dairy sectors are thriving, farmers are reducing debt, export prices are higher than a year ago, and interest rates are falling.

One thing to remember is that bankruptcies and unemployment are lagging indicators. They tell you about the pressure of the last six or twelve months, not where the next six months are heading.

These are real stresses, but they are not at catastrophic levels.

It is tough to see businesses liquidate, and for those involved it can be devastating. Yet across the wider economy, new opportunities do emerge. Job advertisements are starting to increase again, and employers know how hard it is to rehire, so they are holding onto staff, which is exactly what you would expect if they believed things would improve. The latest Trade Me job market survey shows that 35 percent of employers are planning to expand. The job market is weak, but it is not broken.

Confidence is the missing ingredient. It collapsed quickly, and with a little luck it will recover just as quickly.

In New Zealand only a small percentage of loans are floating, so the effect of lower rates takes time to roll through the system. Australians feel rate cuts straight away because most of their mortgages are floating, so changes in interest rates flow through faster. Here the benefits take longer, but once people start locking in the new lower rates, they will feel more secure, cash flow will free up, and confidence might follow.

In 2020 the Reserve Bank cut the OCR to just 0.25 percent, and mortgage rates fell below 3 percent. As global conditions shifted, inflation pressures emerged and the OCR was lifted sharply to 5.50 percent in 2023, which caused floating rates to increase above 8 percent.

The OCR now sits at 3.00 percent and is expected to move toward 2.50 percent. As a result, 5-year mortgage rates are likely to settle closer to 5 percent, while one and two year fixed rates could drop to around 4.50 percent. That will put real cash back into households.

Confidence tends to return quickly once borrowers roll onto lower rates.

But it is important to remember that interest rates move in cycles. The relief we are seeing now will not last forever, and within a few years the Reserve Bank will raise rates again.

Households should use this period to reduce debt and strengthen their position before the next cycle turns, while also allowing for some increased spending.

Even though interest rates have started to fall, many borrowers are still paying the same amount to their bank each month. Instead of cutting repayments they are using the chance to reduce debt. That conservatism is frustrating if you want spending to recover faster, but it is also a strength because it means households are coming out of this downturn with healthier balance sheets.

Reducing debt now is too important to ignore. It is the right choice, and it will set households up for a stronger recovery when lower mortgage rates finally flow through.

While households have been cautious and reducing debt, many councils have gone the other way.

In Wellington, gross debt was $944 million in 2022 and is forecast to reach $2.1 billion within the next six months. Wellington rates have risen more than 50 percent over the past three years. 

That divergence matters.

Households are strengthening their balance sheets while local government is weakening theirs, creating very different starting points for the recovery.

Agriculture will play a big role in the recovery. Farmers are in a stronger position than many city businesses, with dairy payouts remaining high. The ANZ Commodity Price Index shows how volatile this year has been. Dairy surged early, fell through the winter, and has since stabilised. Beef prices remain firm on strong North American demand, while lamb has softened recently but remains at strong levels overall. Aluminium has been a quiet outperformer, trending up despite global tariff shocks, which will affect construction prices.

Forestry has been the weak spot, reflecting China’s property slowdown, though it did show a modest rebound in August. The unusual part of this cycle is that farmers have been paying down debt instead of spending, which has slowed the flow through effect to the wider economy. 

That will not last forever. With more cash flow and stronger balance sheets, rural spending will pick up and help fuel the recovery, particularly when billions from Fonterra’s Mainland sale are returned to farmers. Regional New Zealand is already looking better than the cities, and that strength will spread.

The building sector is also showing signs of turning. The Master Builders State of the Sector report found that around 60 percent of building firms expect the economy to improve over the next 12 months, and a similar number expect their own business conditions to lift.

Two thirds of homeowners reported no significant delays in recent build projects. Costs, finance, and regulation remain constraints, but some of the regulatory issues are being addressed. At the same time, the pipeline of work is improving and regions are leading the shift. This is the sort of momentum that typically comes at the early stages of recovery.

Migration is another factor. Many people have left for Australia, but their labour market is softening. We have seen this story before.

When unemployment rises across the Tasman, some of those workers return, and new arrivals fill the gaps. Migration cycles with the economy, and there is no reason to think this time will be any different. The concern is that every time we lose an engineer, builder, or skilled worker, it becomes harder to build the homes and infrastructure that New Zealand needs. Replacing that capability takes time, and it will be one of the challenges of the next cycle.

Our other long term challenge is productivity, which has been weak for years and caps how fast the economy can grow. Even so, the signs of recovery are clear, and they are happening despite these headwinds. Embracing technology and AI should help to increase productivity.

The housing market, which is always central to the New Zealand story, has likely reached the bottom of the cycle. Prices are unlikely to rocket back up, but they do not need to.

Stability is enough.

Home ownership is still the largest form of saving for New Zealanders, and it gives families and communities an anchor. The three key drivers of house prices are interest rates, migration, and sentiment. Interest rates are easing, migration will swing back, and sentiment will improve as confidence returns.

When prices do start to rise again, they will add further support to confidence. Housing wealth has always played a central role in household decision making, and even modest gains help people feel secure enough to spend. The difficulty is that residential construction is running at low levels just as our population is growing.

That imbalance will only worsen the supply shortage and push prices higher over time. Some of the country’s largest home builders are the retirement village operators, and many of them have slowed construction. That will exacerbate the shortage while at the same time increasing the value of their assets.

Once Summerset completes its current pipeline of villages, its asset backing per share will likely exceed $20. Ryman’s development programme is expected to lift its net tangible assets to above $7.00. These long term dynamics point to higher house prices, stronger balance sheets for the retirement sector, and renewed household confidence.

It is easy to criticise New Zealand’s reliance on property, but the fact is it has protected households through this downturn. People have continued paying their mortgages, reducing principal even when they could have taken the pressure off. That behaviour has built resilience.

When mortgage relief does come through, spending will recover faster because households feel secure.

Global factors will continue to matter. Tariffs from the United States increased from 10 percent to 15 percent in July, but the actual impact has been small so far. Beef is largely protected by product mix, though wine is more exposed. The bigger question is China, where the slowdown in the property market is affecting forestry. For now, demand for our core commodities remains strong, and ANZ’s index shows export prices are still higher than a year ago. That strength underpins our economy.

Beyond this, the global backdrop is becoming less stable.

Analysts note the world has been drifting away from the US-led multilateral system of the past 75 years toward one with more frequent shocks, less predictable growth, and higher inflation risks. Trade tensions and tariffs are part of this shift.

While New Zealand’s commodity demand has held up, we cannot assume global conditions will be as supportive as they were in past cycles. This adds a layer of uncertainty to the recovery story and reinforces the need to strengthen our domestic position.

The Reserve Bank’s latest Monetary Policy Statement and ANZ’s Quarterly Economic Outlook tell a consistent story.

GDP shrank slightly in the June quarter and is expected to grow 0.4 percent in September, with annual growth for 2025 sitting at 0.7 percent before likely picking up to around 2.7 percent in 2026 and 2027. Unemployment is forecast to peak at about 5.3 percent this quarter before easing.

A broader measure of the labour market shows that around one in ten workers either want more hours or are available for work, which is keeping pressure off wages and inflation.

Annual inflation is now 2.7 percent and is expected to edge up to 3.0 percent in September before falling back toward 2 percent by mid-2026. The Official Cash Rate has been cut to 3.00 percent and could fall to 2.5 percent by year end.

The Reserve Bank expects rates to bottom out in 2026 before eventually rising again when demand strengthens.

It is easy to forget how quickly sentiment can change.

We are at the point in the cycle where people look at the data and struggle to believe it. They see signs of improvement, but they are still cautious.

Then suddenly confidence shifts. Households feel secure, they start spending, businesses invest again, and the cycle turns. At that point the conversation changes. Instead of asking how far rates will fall, people start asking when the Reserve Bank will need to lift them again.

That is the point I want to emphasise.

Rates are falling now, and they may fall further over the coming year, but it is not too early to think about when they will rise again. The cycle always turns, and when confidence comes back it usually bounces harder than people expect.

New Zealand’s conservatism can be frustrating.

We are slow to spend, cautious about debt, and too often we argue about infrastructure rather than just building it. But those same traits mean our banks are stable, our households are prepared, and our economy is set up for recovery.

Agriculture is strong, households are paying down debt, and interest rates are heading lower.

The fundamentals are intact.

This is why I’m optimistic. It might not feel like it yet, but confidence does return, and when it does, it often lifts the whole economy faster than people expect. Mortgage relief will free up cash flow. Farmers will spend again. Migration will stabilise. And when those things line up, spending will recover.

By then we will not be talking about interest rate cuts. We will be talking about when will rates rise again.

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 has a minimum interest rate of 6.25%.

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.

If you would like an allocation of these notes, please contact us with your CSN and an amount.

Travel Dates

24 September – Lower Hutt – Fraser Hunter

24 September – Napier – Edward Lee25 September – Wellington – Fraser Hunter

30 September – Taupo – Johnny Lee

1 October – Hamilton – Johnny Lee (full)

3 October – Tauranga – Johnny Lee (full)

7 October – Palmerston North – David Colman

8 October – Christchurch – Johnny Lee (full)

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee24 October – Nelson – Edward Lee

Edward LeeChris Lee & Partners Ltd

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.

_ _ _ _ _ _ _ _ _ _

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

Taking Stock 4 September

FOR those who fear that dopey bureaucrats and unbalanced activists are posing a threat to New Zealand’s ability to refocus on growth and economic progress, the last few days have been encouraging.

Perhaps the divide is not binary but in essence there are those who believe that growth lifts all living standards, and those who believe that existing wealth simply needs redistribution to lift all living standards.

I sit in the corner of those who want growth but should take account of sustainability, those who want wealth from realised capital gains to contribute to the nation’s pool (to spend wisely), but in my group we have no respect for those who live in the public trough and allow bias and personal opinions to surface in their paid work.

The last few days have hinted that Luxon’s government is improving the prospects of more wealth for the Crown to distribute.

I noted:

1. That allowing into NZ wealthy people will lead to the building of nice new houses, with a minimum cost price of $5 million.  A $5m building cost will include more than $500,000 in GST payments and will employ tradespeople.

2. That the Environmental Protection Agency (EPA) now in public acknowledges that its role is to help the process of getting new projects approved. Its CEO, reacting to political criticism, has said so. This sounds like a swing towards science rather than activism.

3. A Central Otago economic consulting firm has published an encouraging analysis of one of the biggest projects that, up and running, would materially alter wealth in Central Otago (and New Zealand).

The EPA’s reaction to typically forthright criticism from the Minister of Resources was adult.

The Minister, Shane Jones, criticised the EPA for its nitpicking, and its apparent belief that its job was to ignore the benefits and prioritise the negatives, when assessing consent applications.

The EPA CEO responded that the EPA now recognised it had the responsibility of making Fast-track applications easier to assess, rather than building obstacles to a successful application.

He is right. I applaud.

Prior to the change in government an application to proceed with a project could be declined by the EPA, which wrongly was given a responsibility it was not equipped to discharge.

It had people able to investigate environmental issues. It had no real commercial talent to weigh economic benefits, as it clearly failed to do with the declined Chatham Rise dredging project.

The Fast-track process passes the accountability of weighing costs and benefits to people chosen for their commercial nous.

Growing our tax base is a dominant factor in having the money to rebuild all those assets that have been ignored, disgracefully, for decades, and to nurse people who are broken.

The following chart highlights the size of the problem, displaying major companies and their nett profit after tax, a guide to how much or how little company tax is being paid. The figures are the latest available. I acknowledge that NPAT is not the only measurement of business progress, but it does hint at the tax payable.

These figures also remind us of the importance of our dairy farmers.

Fonterra $1.168 billion after tax

Auckland Airport $420 million

Fisher & Paykel $377m

Contact Energy $331m

Mainfreight $274m

Spark $260m

Ebos $215m

A2 Milk $202m

Port of Tauranga $173m

Genesis $169m

Vector $167m

Air New Zealand $126m

TVNZ $25m

Get ready to refer back to this list after reading the information below.

Note that many big organisations recorded ugly losses and thus pay no tax.

Meridian Energy loss of $452m

Ryman loss of $436m

Fletcher Building loss $419m

Infratil loss $261m

Very clearly, corporate taxes need lifting. New ventures are needed.

Bureaucratic hurdles are welcomed only if the project comes with profits but needs intervention because of related hidden social costs.

Last week the High Court supported a Maori hapū who opposed a consent application from the Port of Tauranga which wants to develop its port at Sulphur Point and at Mt Maunganui.

Either a careless proof-reader or a cynical company lawyer led to missing a reference in the POT description of the Sulphur Point development. The hapū has a marae a few hundred metres from Sulphur Point. It claims it is affected by air quality, noise, traffic etc, and protests against the development.

The High Court confirmed the Port of Tauranga could not proceed to the Fast-track process until it addresses these issues.

The Port argues that these delays affect a project worth hundreds of millions of dollars. (POT is our major export port.)

Clearly POT should have responded to the hapū opposition, at least acknowledged it, and displayed how it could mitigate any meaningful problems.

It is greatly encouraging that the EPA does not have the right to decline the project but does have the right to draw attention to what was a relevant error in the application.

That the mainstream and social media typically side with protestors is no longer in doubt. Protest equates with clickbait and thus does not have to be balanced in its presentations. Many people enhance their ego by collecting clickbait support.

The application now has to be “complete”, not popular with irrelevant reporters, seeking by-lined attention.

Of course this narrative leads into the most relevant application that will be filed this year.

That is the consent application from Santana Minerals to mine a distant valley in the Dunstan ranges, on land owned privately by the Bendigo Station, the site more than three kilometres from any house, and out of sight from anyone bar occasional motorists driving through the hills, or from inquisitive passengers on aircraft.

The importance of this project can be seen by referring back to corporate New Zealand’s 2025 NPAT results, with their implied contributions to tax, displayed in the chart above.

Contact Energy, NPAT $331m, was fourth on that list, Mainfreight at $274m, was fifth.

Santana Minerals has published independently calculated figures, based on a gold price 10% lower than the current spot price, estimating NPAT of around $290 million, nett profit after paying corporate tax close to $200 million, including royalties. This makes Santana high on our list of future tax-payers.

This week an independent Central Otago economist released an analysis of Santana’s prefeasibility study (PFS). His release was described as an Economic Impact Statement (EIS).

The independent analysis found:

a) The project would contribute $5.8 billion of direct GDP to the Otago economy over its initial 13-year life, calculating this at NZ$5410 per ounce of gold. The spot price this week is a few dollars under NZ$6100 an ounce.

b) Government revenue over the mine life, from taxes, royalties, PAYE tax and ACC payments, would be approximately $1.8 billion, substantially more over the period than Contact Energy future corporate tax payments, at its current level of profitability.

c) The project would support 357 fulltime equivalent workers, earning on average per annum $140,300, more than double the inland Otago average wage. (There have already been 1000 job applications, unsolicited, many from within iwi and from local and nearby residents.)

d) The total number of direct and indirect jobs created would be around 854.

e) The average GDP per worker at the project would exceed $1 million, at least seven times the average of inland Otago workers, and 12 times the national average.

Note that Wellington’s average GDP per head, of around $80,000 is calculated as though the total cost of the public service is exactly matched by their contribution to GDP. (Surely there must be a better measurement of the contribution of public servants to GDP.)

If the application were forwarded as being “complete”, the Fast-track panel would then assess any cost of the project (such as a 13-year scar on a barren, distant valley) against the financial benefits.

New Zealand badly needs $2 billion of new tax receipts. It also needs well-paid jobs.

The new system takes out of play those who revel in “belching in church” to gain short-term attention to their likes and dislikes. It leaves in play those with knowledge of the environment and ecology, and those with the commercial and social skills to weigh costs against benefits.

When consent is sought, the EPA has 15 days to consider and then forward the application to the Fast-track people, or to define what issues have not been addressed, returning the request to the applicant.

Those who read the Bendigo Economic Impact Statement will be hoping that the weighing of costs and benefits will not take anything like the allowable six months by the Fast-track panel.

The Santana project is comfortably the one that will have the most immediate benign effect on our economy.

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IT IS telling that the two environmental groups with the knowledge to comment meaningfully on the Bendigo project have to date been silent.

Those two organisations are Forest and Bird, and the Environmental Defence Society, both of which have relevant leadership and structures, focus on science, and cannot be captured by headline hunters.

By contrast, the views of the Sustainable Tarras group are similar in relevance to a streaker at a schoolboy rugby match, in my opinion.

Sustainable Tarras was quite legitimately entitled to some consideration when an airport was mooted to be built in the town of around 250 people, a few kilometres north of Bendigo. That airport would need to be tolerated by all Tarras people.

Some people in Tarras appointed as its spokeswoman a Wellington Regional Council employee whose is paid in Wellington to consider environmental issues in Wellington. That spokeswoman, Suzanne Keith, is described as being an employee who writes on the environment, has 20 followers from Victoria University, according to Google, but has a homely bach in Tarras.

She seems a keen outdoor person, and is obviously highly motivated, a major user of the Official Information Act, presumably to help her assess environmental issues. 

But her following is not stacked with people able to form solid assessments of costs and benefits. Her recent public meeting in Cromwell, at a church hall, attracted 120 people, whose loudest message was their disappointment that their opinion will not be canvassed. According to earlier media reports, a double-figure number of Tarras people have expressed interest in working on the site. Presumably they were not at Keith’s meeting.

By contrast with “Sustainable Tarras”, Forest and Bird, and the EDS, are weighty organisations, not dependent for information or opinion on a tiny number of activists.

Their views would be interesting. The eventual equation to consider will be based on science and maths, not on any resistance to the beauty or otherwise of a working mine. I presume the Wellington Regional Council is not paying for an activist to pursue her cause. (Perhaps this personal task is performed outside work hours.)

I repeat: this project is important to NZ. The government understands that. Opposition would be ineffective unless it was based on science, and was balanced.

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RECENT analysis suggested that in the past year or so the banks with the best track record of forecasting financial market changes (interest rates, currency etc) have been the ASB and Kiwibank, surprisingly the ANZ being at the other end.

ANZ, our largest bank with the broadest database, now forecasts that the Reserve Bank will cut interest rates by 25 basis points twice before Christmas. I believe the ANZ.

This implies a cash rate of 2.5%, bank deposit rates falling to a similar level for short-term rates, with call rates for retail sums unlikely to remain in the 2% range.

It is the long-term rates that are meaningful for investors.

Mortgage rates will probably fall a little but given so many mortgages are floating, the big question for borrowers would be the point at which banks are forced to lift rates. If that is next year, then borrowers might be pondering fixing their mortgages for a longer term.

What lingers in our company’s thoughts is the ease (or difficulty) with which countries can raise 10-year money from bond markets.

Currently, countries often have low cash rates, but the rates demanded by bond markets, to fund government borrowing programmes, is the issue that preoccupies me.

The US 10-year rate is around 4.15%, the UK rate is nearer 5%, the NZ rate also in that area.

Thirty-year rates are nearer 5% and look likely to rise. Bond markets penalise countries that keep borrowing more and have no plan to raise taxes to solve the imbalance.

If bank and swap rates stay around 3%, then a 10-year rate of 4.5% is talking loudly about future inflation rates and currency values.

Currently, one can buy in NZ very long-term council bonds at yields well above 5%, such as the 2050 Auckland City Council bond, cleverly sold in 2021 when interest rates were inexplicably at almost zero, enabling the ACC to borrow for 30 years at lower than 3%.

That was the period when NZ should have raised a hundred billion with issues of long bonds. At one stage the NZ 10-year rate was 0.5%.

We now raise money at nearer 4.5%. A 4% saving on $100 billion would have been rather useful.

Austria did see that opportunity. It raised billions with a 100-year bond at an extremely low rate, less than 1%. The Austrian 100-year bond today sells for around 35 cents in the euro, meaning pension funds which bought the bond have been slaughtered by the fall in value, while Austria spends very little on servicing its debt.

I suggest investors carefully watch long-term rates. If the latest bout of money-printing or the next tranche (from a Trump-influenced Federal Reserve) sees global savers willing to buy bonds at 2%, that would be a strong signal to me to quit long bonds while rates are artificially low.

The 10-year global bond rates send a loud signal, much more relevant than the overnight cash rate, which will always be volatile.

How clever of the policy-makers in Vienna to have spotted the opportunity. How stupid of managers of other people’s money to have bought any of those 100-year bonds!

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Travel

11 September – Ellerslie – Edward Lee

12 September – Albany – Edward Lee

24 September – Lower Hutt – Fraser Hunter

24 September – Napier – Edward Lee

30 September – Taupo – Johnny Lee

1 October – Hamilton – Johnny Lee

3 October – Tauranga – Johnny Lee

7 October – Palmerston North – David Colman

8 October – Christchurch – Johnny Lee

Chris Lee

Chris Lee and Partners Limited