Daily ShareChat: Fletcher Building

The recent housing loan approvals, house and land sales data are pointing to a more modest recovery in residential approvals and construction in the next 18 months than he had previously envisaged, says First NZ Capital analyst Kar Yue Yeo.

However, he still expects a recovery to mid-cycle activity levels by the year ending June 2012 and has based his $8.40 a share target price on that expectation.

The November real estate figures suggest residential building may level off in the next few months because appetite from home buyers is starting to wane after recovering since February 2009.

"Despite a positive trend in net migration, the past two months of transaction activity is now pointing to about 16,000 new residential building approvals to June 2010 compared with our previous forecast of 18,000," Kar Yue says.

That's based on house sales dropping to a seasonally adjusted 5,500 in November from 6,066 in October and 6,436 in September.

He expects there were about 1,300 building consents issued in November.

Kar Yue has downgraded his forecast net profit before one-offs for the year ending June 2010 to $283 million from $313 million previously and his 2011 forecast to $414 million from $443 million previously. Nevertheless, he has upgraded his recommendation.

BROKER CALL:  First NZ Capital rate Fletcher Building as neutral (from underperform).

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