Daily ShareChat: Fletcher Building

By Jenny Ruth

Wednesday 19th August 2009

Fletcher Building's 33% plunge in net profit to $314 million before one-off items was broadly in line with expectations, says Morningstar Research.

A 14 cents-a-share second-half dividend brought annual dividends to 38 cents, well below the previous year's 48.5 cent payout, "and reflects lower profits and management's cautious outlook."

It expects earnings to decline 3% this year, "primarily as a result of lower earnings contribution from the steel division which had an outstanding year last year," Morningstar says.

"The outlook still remains quite uncertain although confidence seems to have picked up lately." The New Zealand property market appears to be stabilising but management is cautious about the outlook for the residential sector, not expecting any meaningful pick-up in housing starts this year, although building products should benefit from rising insulation earnings.

The Australian economy is proving to be more resilient but the company's management is taking a cautious view on that market too.

Infrastructure activity in both countries is likely to remain stable due to government spending and Fletcher Building's $1.4 billion order backlog "is also reassuring."

Activity in Europe I likely to deteriorate further and activity in North America is likely to remain depressed. However, continued growth in Asia and a possible margin improvement due to the firm's cost cutting initiatives might assist Formica's earnings, Morningstar says.

BROKER CALL: Morningstar Research rate Fletcher Building (NZX: FBU ) as hold.

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