Goodman float cold shouldered

Graeme Hart's float of Goodman Fielder is meeting a lukewarm reception from New Zealand investors.

Most fund managers said they had not had a chance to look closely at the offer yet, but their first impressions were not favourable.

"We're not that interested," said Stephen Walker, head of local fund manager Walker Asset Management.

"We don't see a lot of upside from the sort of levels they're selling at, given there's not a lot of potential to improve the earnings from where they are now."

Hart's Burns Philp will float the Australasian food company next month at A$1.85 to A$2 ($1.98-$2.14) a share, which will give the company an enterprise value of up to A$3.75 billion.

Goodman Fielder's assets include such market-leading brands as Meadow Fresh, Edmonds and Kiwi Bacon but Walker said the businesses were "mature, low-growth exposures".

With its strong reliance on branded products, Goodman Fielder is vulnerable to supermarkets increasing sales of their own brands, a fund manager says. Penetration of supermarkets' own brands in Australia and New Zealand is lower than in many other countries.

The company's earnings before interest and tax are forecast to rise by a total of 26 per cent over the next two years to A$405.6 million, according to the prospectus, but sales will rise just 10 per cent to A$2.53 billion.

Fund managers said they were concerned that much of the profit growth would come through cost cutting rather than increased sales.

"They've probably left enough juice in it for earnings growth for one or two, but what will happen after that?" one said.

ASB Securities adviser Stephen Wright said he expected "modest" interest from retail brokers.

"I don't think people are going to get excited by it," he said. "It's been around before and is solid, but unspectacular."

Goodman Fielder was listed on the Australian stock market until 2003, when Burns Philp took the company over for A$2.25 billion and took it private. The float prospectus had been due to be launched last Friday, but was delayed as Hart tried to stick up a sale to a partnership of private investment firms - Boston-based Bain Capital, Australia's Pacific Equity Partners and international investment bank Goldman Sachs.

The offer was reported to be worth up to A$3.6 billion, excluding Goodman Fielder's debt.

Walker said: "You've already got to be pretty wary buying assets from private equity players of the likes of Pacific Equity Partners.

"And now we're looking at an asset which they wouldn't pay up for, so I guess you've got to be a bit wary of that potentially."

However, another fund manager said the fact that Burns Philp was retaining 20 per cent of Goodman Fielder was a positive for the float.