Elizabeth Knight was particularly bullish in The Sydney Morning Herald last week when she wrote a column talking up the prospects of the $2.5 billion Goodman Fielder float. These lines were a cause for concern:

There are numbers circulating in the market that put a new complexion on the future of Goodman Fielder. For a start, numbers have been produced by some investment players that say the 2006 EBITDA will be $440 million rather than the $417 million. This changes the whole outlook. It certainly increases the value and attractiveness of Goodman Fielder, and if the optimists are to be trusted it should improve the demand for stock.

So where do the additional earnings come from? Apparently it’s a combination of the annualised earnings from La Famiglia (a garlic bread product) and greater-than-expected contributions from New Zealand Dairy Foods – the business that Graeme Hart is personally selling into the Goodman Fielder float.

Apparently the management is confident that there is room for a lot of profitable change in Baking Australia, the division that sells the bread. Some of this comes down to a plan to increase prices. The major competitor in the bread market, George Weston, chose to follow Goodman Fielder last time it pushed up prices. Goodman Fielder would also like to increase the shelf life of bread, which now goes back to the supplier after one day and is ultimately sold to pig farmers for 1c per loaf.

Goodman Fielder may have more success by increasing its marketing sales of its higher margin premium breads such as Helgas and Mollenberg. As always, the potential to achieve short-term growth comes down to whatever number Hart and his team pluck out of the air to cover the synergy benefits. It’s always difficult to check these estimates. The prospectus says synergies should come in at $10 million but there are estimates that range as high as $25 million. Maybe the optimists are just being optimists or maybe Hart and his team are underboiling in order to create a strong secondary market.Time will tell.

We don’t want to sound like a broken record on this, but Liz Knight’s husband, media analyst Alex Pollack, has an indirect interest in the success of the float through his role as a director of a Macquarie Bank, one of the joint lead managers in the IPO.

When Liz writes about Macquarie, she offers an inadequate disclosure of her interest in Macquarie Bank shares. She is now getting awfully close to spruiking an overpriced IPO by disclosing information not in the public domain and not disclosing her interest.

New SMH editor Alan Oakley needs to lay down the law on this issue – and ASIC ought to make some inquiries about where these figures have come from. Should investors rely on the prospectus or Liz Knight’s mystery figures?

Peter Fray

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