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Cutting down the flowers to water the weeds?


Cutting down the flowers to water the weeds?

Fairfax have announced that they are selling their holdings of Trade Me group, which is an online classified platform in New Zealand. Despite Trade Me being one of Fairfax’s key performing assets (comprising $86 million of the group’s $506 million in earnings in FY12), it is being sold down to reduce Fairfax’s net debt.

Many would argue they are cutting down the roses to water the weeds but before jumping on that bandwagon, it suggests to me they have a plan. I reckon its an online plan and one they believe they can repeat.

The proceeds are required to “provide the financial flexibility to invest and to complete the company’s structural transformation”. While it makes you wonder how successful the company’s “structural transformation” will be if they offload this river of gold I reckon they have a plan to repeat their Trade Me success. The database is huge and with the right offering(s) they have the opportunity to dominate mobile the way no-one has yet. Oh, and its interesting that the share price is the closest its been to intrinsic value (according to Skaffold.com) in a decade…

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.


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