Fletcher Building

By Dan Stratful

Wednesday 22nd February 2012

Heavyweight Fletcher Building (NZX: FBU ) reported its first half result this morning and, as many had expected, it included a full year profit downgrade. FBU’s shares dropped 3% on the news as net earnings before unusual items fell 4% to $159 million.

Earnings for the six months ending 31 December 2011 (1H) were negatively impacted by low levels of activity in the New Zealand construction industry, as new house building approvals fell to their lowest level in the 46 years since records began.

The encouraging aspect to take from the 1H result was that FBU’s total revenue increased strongly, up 30%, and this was due to the acquisition of Crane, while underlying revenue on a like-for-like basis (excluding Crane) fell 5%.

1H earnings per share (EPS) was 21.2 cents, down from 27.3 cents in the prior corresponding period, while 1H normalised EPS (excluding unusual items) was 23.4 cents.

A 17 cents per share 1H dividend will be paid, up from 16 cents in the prior 1H.

FBU will undertake a strategic review of its Australian and New Zealand insulation businesses, which means there could be further one-off negative items included in the full year result due to be announced in August 2012.

For the full year ending 30 June 2012 (FY12) FBU’s net earnings (before unusual items) are expected to be between $310 million - $340 million, compared with $359 million in FY11. This guidance assumes very modest increases in new housing construction in New Zealand and no improvement in Australian residential building activity.

FBU is at a cyclical low, a low that many thought occurred with the FY11 normalised profit result of $359 million. But it’s the FY12 profit that will prove to be the cyclical low as earnings recover into FY13 and FY14. For the contrarian, there’s no better time to buy construction shares.

Status: GROWTH BUY

FBU’s shares today traded at $6.42

For portfolio, sharemarket and fixed income enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

Disclosure: FBU

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