Daily ShareChat: Construction companies

The environment for construction companies such as Fletcher Building in the year ending June 2011 remains challenging but the outlook for 2012 is positive, says Forsyth Barr analyst Rob Mercer.

"The biggest near-term issue facing construction companies is the shortfall in major construction projects being planned for 2011," Mercer says.

"This is not because there is a lack of known projects but more because there is little scope to bring forward the timeline of these projects otherwise scheduled to begin construction in 2012/13."

The government's national infrastructure plan published in March "clearly highlights the anticipated dip that will occur in 2011 (-10%) which is then followed by a 20% increase in projects being planned for development in 2012."

Elsewhere, lack of access to mezzanine finance is still a problem obstructing the reactivation of private sector-funded property development. Construction margins are under near-term pressure and the formation of the Auckland super city and the 2011 Rugby World Cup will see construction in Auckland slow towards the second-half of 2011, Mercer says.

He remains confident New Zealand economic conditions will gradually improve over the next couple of years buy it will take that length of time before we see a confident and sustained recovery in activity, he says.

Recommendation: Accumulate

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