FBU - Fletcher Building

[bull....]

Morningstar which is the most conservative of all analysts I have ever seen has already updated its reco after this bad news out ...they still say FV $ 6 ...being super conservative makes that pretty solid reco ...imho

i let you know when aussie investment bank ones come thru

[winner69]

FBU have over $1b in lease liabilities which some must be leases on their large fleets of trucks, machinery, cranes etc. If you add this to their debt their gearing is closer to 60%

Anyone with more accounting knowledge care to share their wisdom on this area?

I'll look later but lots if PlaceMaker etc stores with expensive leases would be large chunk if it I reckon

[Rawz]

I'll look later but lots if PlaceMaker etc stores with expensive leases would be large chunk if it I reckon

Ah yes of course

[bull....]

here we go all downgrades

goldman sachs cuts price target 20% to A3.70 RATED NEUTRAL
JEFFERIES CUTS 13% TO NZ5.20

probably more to come

[Leemsip]

Accountant here. Lease liabilities dont really count (in my mind), I mean you are in a contract and "owe the money", but its just part of the monthly expenses and running the business, so not proper debt in my opinion. I exclude them from any analysis. You arent planning on paying them back, other than the monthly tick over... Example on my thinking on this - is a company with 1 year left on a lease (so small liability) better off than a company who has just signed a 10 year lease (massive liability).....

Trick with this, and the new accounting standards, is to make sure you factor these into operating cash flow, as it goes through financial cashflows in the statements now...

[whatsup]

here we go all downgrades

goldman sachs cuts price target 20% to a3.70 rated neutral
jefferies cuts 13% to nz5.20

probably more to come

$3.55 atm, $3.55 atm !

[bull....]

just had a couple more massive ones come thru ... all downgrades

macquarie cut 43% to $3.46 nz
morgans cut 30% to $4 nz


not surprised i found there answers quite vague around the big downturn in business last 2 mths

[Balance]

just had a couple more massive ones come thru ... all downgrades

macquarie cut 43% to $3.46 nz
morgans cut 30% to $4 nz

FBU has made a fool of the analysts with their previous forecasts and valuations - they are not going to be in forgiving mood!

[bull....]

FBU has made a fool of the analysts with their previous forecasts and valuations - they are not going to be in forgiving mood!

yes a number of analysts were pissed with there communication of business conditions only end of last yr

[Greekwatchdog]

For Bars Review

Fletcher Building's (FBU) 1H24 result and FY24 guidance was disappointing. FBU does have some good NZ businesses with strong market positions which have generated c.NZ$390m EBIT on average over the last decade. However, group performance has been dragged down by issues in Construction and Australia. The question is: are these over? We think it's unlikely in the short-term, with the New Zealand International Convention Centre (NZICC) still to be completed and Iplex pipe issues still unresolved. We acknowledge the perennial underperformance of FBU but the combination of cyclically low activity, significant negative items likely at their peak, and new management retains our interest. Towards the end of 2024 the NZICC should be finishing, we should have more clarity on whether (or not) an Iplex product recall will occur, new management will have set out their vision for the businesses, and the NZ operating backdrop will likely be more constructive (FBU did lift FY24 home sales guidance highlighting improved housing demand). As such we maintain our OUTPERFORM rating on valuation grounds (12 month forward PE of 10x) but acknowledge the market will likely want certainty on NZICC completion costs and Pro-fit (Iplex) pipe issues, as well as lower debt levels to rerate the stock.

What's changed?

• Earnings: We lower our FY24–26 EBIT forecasts -13%/-7%/-6%
• Target price: We lower our target price -9% to NZ$4.80.

Weak 1H24 with no post election bounce


The weaker than expected 1H24 EBIT of NZ$264m was disappointing but likely the result of slower NZ activity persisting past the election (and into the new year). Building Materials (EBIT -34% vs 1H23, EBIT margin 11.1%) and Distribution (EBIT -46% vs 1H23, EBIT margin 4.2%) saw the largest declines, while Australia was more resilient (EBIT -5%) despite continued underperformance from Tradelink (NZ$122m write-down and now being divested). The one bright spot was residential development, where the guidance for home sales was increased to 900 (previous guidance 700–800). No dividend was declared due to high gearing and a cash outflow. FBU provided FY24 EBIT guidance of NZ$540m–$640m with the midpoint reflecting continuation of current trading conditions. ​​​​​​​

A lot of water to go under the bridge over the next 12 months


Recent challenges with FBU's performance (and communication of those challenges) have lead to Chair Bruce Hassal and CEO Ross Taylor both announcing they will depart the business. The next 12 months will have their challenges: the NZICC needs completing, the Profit pipes saga will drag on (with a product recall a significant risk for FBU), NZ demand could be patchy, the balance sheet needs more careful management (we calculate senior leverage ratio of 2.3x using the midpoint of guidance and FBU's current debt vs. a 3.25x covenant providing c.NZ$700m of debt headroom), and there will be a new management team before year end.

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OUTPERFORM

Fletcher Building's (FBU) 1H24 result and FY24 guidance was disappointing. FBU does have some good NZ businesses with strong market positions which have generated c.NZ$390m EBIT on average over the last decade. However, group performance has been dragged down by issues in Construction and Australia. The question is: are these over? We think it's unlikely in the short-term, with the New Zealand International Convention Centre (NZICC) still to be completed and Iplex pipe issues still unresolved. We acknowledge the perennial underperformance of FBU but the combination of cyclically low activity, significant negative items likely at their peak, and new management retains our interest. Towards the end of 2024 the NZICC should be finishing, we should have more clarity on whether (or not) an Iplex product recall will occur, new management will have set out their vision for the businesses, and the NZ operating backdrop will likely be more constructive (FBU did lift FY24 home sales guidance highlighting improved housing demand). As such we maintain our OUTPERFORM rating on valuation grounds (12 month forward PE of 10x) but acknowledge the market will likely want certainty on NZICC completion costs and Pro-fit (Iplex) pipe issues, as well as lower debt levels to rerate the stock.