Fletcher Building’s first-half result could be a taste of things to come?

Investors will find out tomorrow if New Zealand’s biggest building construction and materials manufacturing business can meet its operating earnings forecast of $305 million to $320m in the half-year to December

Fletcher Building is among the first batch of listed companies due to report this season, following Contact Energy’s result yesterday.

The $30m from the company’s sale of 35ha of controversial land at Ihumātao in Māngere might be included tomorrow: that deal was announced on December 16 and the results are for the six months to December 31.

Chief executive Ross Taylor and chairman Bruce Hassall will hold a briefing later tomorrow morning to give further details of the result, due out around 8.30am New Zealand time.

Fletcher is trading on the NZX at around $6.44, up $1.20 or 23 per cent in the last year, giving it a market capitalisation of $5.3b. On the ASX, it is at A$5.98, up on November’s A$5.33.

In mid-2018, Taylor launched a five-year strategy to transform the company and he said at November’s annual general meeting in Auckland that was paying off.

“I remain confident we can deliver against the FY23 targets we set ourselves back in mid-2018,” he said.

Those were to push up revenue, make higher margins and get the return on funds employed above 15 per cent.

Rohan Koreman-Smit and Ashton Olds of Forsyth Barr issued an updated research note yesterday headlined ‘if you build it …’

“On a like-for-like basis we expect a strong set of results underpinned by resilient New Zealand residential activity and a material cost base reset,” the two analysts said.

Despite Covid lockdowns, continued strong New Zealand activity indicators might give management confidence to provide FY21 guidance “and we see upside risks
to our forecast and consensus,” they said.

Forsyth Barr forecasts Fletcher full-year earnings for the year to June 30, 2021, of $593m and they said Bloomberg had a consensus of analysts’ forecasts higher at $611m.

Koreman-Smit and Olds’ information forecast 1H21 revenue at $4.02b, up 1.6 per cent from the previous corresponding period of 1H20 of $3.9b.

EBIT is forecast to rise from last year’s $219m to $308m, underlying profit from $107m to $178m but no dividend is forecast.

On the Ihumātao front, the company’s residential and land development division, headed by Steve Evans, is forecast to push EBIT up 104 per cent to make $72m in the December 2020 half-year, compared to $35m in 1H20.

That is the biggest rise of any division, followed by Australian earnings forecast to rise 40 per cent, the concrete division’s EBIT up 24 per cent and building products up 19 per cent.

The construction division’s operating earnings are forecast to drop 14.3 per cent from $14m to $12m.

Fletcher has finished work on the $1b Commercial Bay on Auckland’s waterfront but is continuing fixing the NZ International Convention Centre for SkyCity Entertainment Group.

Taylor said in November: “We now have under $600m of work remaining, while at the same time we have successfully built a forward order book of over $2.4b with
much better risk and margin profiles.

“A pleasing recent win was the AMETI Eastern Busway Alliance project in Auckland. This is a major multi-year project, and the consortium we are part of has now been announced as the preferred partner with Auckland Transport,” Taylor said.

The ForsythBarr analysts forecast underlying profit to rise 65 per cent from $107m to $178. New Zealand is predicted to generate $255m, up 53 per cent on last year and Australia $49m, up 11 per cent.

Taylor told shareholders in November that the first six months looked promising.

“The trading update also showed we are making good progress on improving the operating performance across all of our businesses. Through the first four months we saw group revenues up slightly by 1 per cent, group EBIT of $227m up $80 million, group EBIT margin up 2.9 percentage points to 8.4 per cent due to improved operating efficiency, and our cash flows and balance sheet remain strong with net debt at $388m and available liquidity at $1.4b as at October 31, 2020,” he said.

Taylor told the Herald last month he had returned to New Zealand at the beginning of January, having completed two managed isolation stays last year: the first fortnight in Rotorua on his return from Australia around the middle of last year and then in Sydney towards the end of last year when he returned to Australia for work.

Mark Lister, head of private wealth research at Craigs Investment Partners, said this week that Fletcher was first off the rank to report.

“If offshore trends are anything to go by, we should expect some positive headlines,” he wrote in the Herald yesterday.

Almost 80 per cent of the companies in the S&P 500 have now reported earnings results, and almost three-quarters of these have exceeded initial forecasts, Lister noted.

The overall earnings growth rate for the S&P 500 for the December quarter is now sitting at 2.9 per cent.

“That doesn’t sound hugely impressive on the face of it. However, it’s much better than the 6.8 per cent decline that was expected just before the reporting season started,” he said.

On the upcoming Kiwi company results, Lister said: “Many of these should release some predictably solid numbers, with minimal risk of disappointment. That includes the electricity companies, those in the listed property sector, and the likes of Ebos, Spark and Vector.”

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