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Fletcher Building Shares Recover But Questions Remain

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, May 20 NZPA - Fletcher Building shares recovered after the company affirmed profit guidance today, but questions remained over how the company would continue to fare in a global slowdown, an analyst said.

Shares in the blue chip building and construction materials company dived to match April's two-year low, on a reaffirmed forecast of full year net profit between $450 million and $460 million, provided there was no significant change in economic conditions.

The company in August reported its 2007 year net profit after tax and minority interests rose 28 percent to $484m.

"A lot of people are saying `this is the news that we've all been awaiting', and now we've heard it theoretically the share price should rally," said Rickey Ward of Tyndall Investment Management.

"It's a great company at the end of the day, but it's operated in an industry which has enjoyed wonderful growth and that growth appears to be coming globally to a halt."

Fletcher Building forecast operating earnings (earnings before interest and tax) in the range of $750m-$760m, against last year's $703m.

The third-largest listed company, which was bumped off second place this year as its share price took a hammering, has spent billions of dollars diversifying its business geographically and across product lines.

With the exception of laminates company Formica's US operations, which it bought for $US700 million last year, the group had performed satisfactorily.

"While Formica's initial trading and operational results have been disappointing, and conditions in the USA market in particular are tougher than the acquisition assumptions, directors are still confident the synergies and improvements identified on acquisition will be achieved," Fletcher Building said in a statement.

It was unclear whether Formica's poor performance was a one-off as Fletcher Building integrated it in a tough environment, or whether it would continue to drag down earnings, Mr Ward said.

Formica would cut Fletcher Building's profit by around $21m including tax, while consolidating its North American operations would cost around $29m including tax.

In New Zealand, the company was propped up by high steel prices, but was very exposed to the slowing residential construction sector.

"If you believe we're going to go into slow economic times, particularly here and overseas ... then it's hard to believe that you won't hear some more negative news," Mr Ward said.

Fletcher shares closed down 25c at $8.25, having fallen from a record high $13.42 a year ago. They hit a session low of $8.01.

The company put out the forecast, which included $58m of one-off gains, after reviewing its April figures.

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