Daily ShareChat: Fletcher Building

By Jenny Ruth

Thursday 12th November 2009

Fletcher Building shares still offer "valuation appeal," despite additional near-term weakness in the infrastructure division, says David Oxley, an analyst at Craigs Investment Partners.

He expects this weakness will be offset by increased earnings from the Laminex and building products divisions and has left his aggregate forecasts broadly unchanged.

Oxley values the stock at $8.75 compared with yesterday's closing price of $7.96 and he says his believes his estimates are "relatively conservative."

The company's medium-term outlook remains positive, he says. "Leading indicators continue to suggest that the key New Zealand residential construction market has bottomed and that the considerable stimulus provided by historically low mortgage rates and strong net migration flows will drive a recover," he says.

"Encouragingly, Fletcher Building management recently acknowledged that the group is now starting to see signs of such a recovery in its businesses."

Near-term risks remain relating to the timing of large-scale government-funded infrastructure projects but current budgets suggest significant growth from this source will emerge over the medium term, Oxley says.

He sees a likelihood of "incrementally positive macro-related news flow over the next 12 months."

Oxley is forecasting the company's normalised net profit will fall from $314 million in the year ended June to $292.6 million in 2010 before rising to $370.3 million in 2011.

BROKER CALL: Craigs Investment Partners rate Fletcher Building as buy.

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