StockWatch: FBU Fletcher Building Limited

[metro]

An excerpt from <s>the</s> my StockWatch newsletter:

FBU Fletcher Building Limited

Head Office: 810 Great South Road, Penrose, Auckland. Tel: 09 525 9248. Fax: 09 525 9029.
Business: Manufactures, distributes, and sells materials for the building industry.
Chairman: Roderick Deane Managing Director: Jonathan Ling, P E Baines, H A Fletcher, G J McGrath, Sir D Spring.
Senior Management: J Ling Managing Director, M J Binns MD-Infrastructure, D C Edwards MD-Distribution, P J F Merry GM-Human Resources, MC Farrell Company Secretary and General Counsel, W J Roest Chief Financial Officer, D Worley MD-Laminates and Panels Group.
Dividend Reinvestment Plan: Yes.
Market Capitalisation: $4.3 billion.
Share Registry: Computershare Investor Services Level 2, 159 Hurstmere Road, Takapuna, Private Bag 92119, Auckland. Tel: 09 488 8777. Fax: 09 488 8787.
Share Price: as at 19th November 2006 $9.85.
Website: http://www.fletcherbuilding.co.nz

Introduction:

Fletcher Building Limited (FBU) manufactures, distributes, and sells materials for the building industry including wood fibre-based products, cement and aggregates, plasterboard and panel products, lumber and aluminium extrusion and residential and commercial construction. The company operates primarily in New Zealand and Australia and is currently riding the wave of increased construction activity in Australasia.

FBU commands a strong competitive position in the building materials sector. This is assisted by industry leading brands and a nation-wide distribution network. The company also has a very strong presence in the infrastructure segment in New Zealand.

The company believes that it has the necessary financial capacity to pursue big-ticket acquisitions with the stated objective of having a debt/capital ratio between 40-50% over the longer term.

Latest Result:

In spite of weakiening demand in the residential property market on both sides of the Tasman, Fletcher's strategy of diversification and strategic purchases ensured earnings reliabilty in a cyclical downturn with the NPAT (net profit after tax) reported at $379m (and increase of 9.0%) for the full year ended 30th June 2006 from sales of $5.52bn (an increase of 6.0%). Revenues from ordinary activities were NZ$5,520m, up 19.1% from the same period last year. Diluted EPS was 79.6 NZc compared to 73.2 NZc last year. Net operating cash flow was NZ$560m compared to NZ$479m last year. Total dividend for the year was 40 NZc compared with 32 NZc last year. The company advised that the full year result reflected a more difficult market environment, offset by the benefits of acquisitions and ongoing productivity improvements.

Brokers Recommendations:

ABN Amro Craigs (ABNAC) in their Spring client newletter stated FBU full year result "demonstrated the inherent strength of the company's diversification strategy. Our view of the stock has not changed; it is a top quality franchise with a solid track record of value creation. FBU's diversification strategy has provided it with a good measure of earnings reliability in a cyclical downturn. While the earnings growth outlook is likely to be less spectacular in the absence of acquisitions, we believe it is still very respectable in a slowing economic environment. ABN Amro Craigs analyse Dennis Lee described the result as a "solid but less sparkle this time". In the context of a slowing environment "we think this is a very credible performance. As expected the drivers have slowed in the second half but not as severely as we had anticipated....the slowing residential markets on both sides of the Tasman and cost pressures were reflected in two of the four divisions displaying margin pressure. The result is a good showcase of FBU's diversified earnings base. Investors should take comfort in the company pushing for modest earnings growth despite an economic slowdown". "The result is a testimony to FBU's improved earnings reliability". ABNAC's Target P

[kura]

Isn't that a breach of copyright to reproduce articles from a subscription service ?

[kittydashwood]

Metro what is a hold+?

Should I add to my holding or hold more tightly?


IMHO In 12mths FBU will be more likely to be 19.55.

[metro]

KittyDashwood: Given the recent takeover and acquisition activity in the building sector of the ASX and with a possible contract for the construction of the Waterfront Stadium it might well be closer to $19.55 than $10.55, in 12 months. But using the Dividend Discount Model which is what many equity analysts use i.e. D1/k-g and ifyou are predicting g, i.e. the growth in earnings to be flat or reasonably flat (which is what I said above) it would be impossible to justify a valuation of $19.55 using the model. Even using a Discounted Cashflow model (DCF) it would not be possible to justify a valuation of $19.55. I perhaps should have said StockWatch predicts a 12 month target price of at least $10.55.

Recommendations used in my newletter are: Sell (E), Reduce (D), Hold (C), Hold+ (B), and Buy (A). A HOLD+ is one step down from a BUY, HOLD+ meaning HOLD or BUY if you don't already have some. I don't think many investors have ever regreted buying FBU, only regreted selling as the stock has gone from strength to strength, even with the departure of Ralph Waters. For a NZ equity portfolio, medium risk profile and with an emphasis on growth I would consider it a core holding along with CEN, AIA, SKT, MFT, FPH etc. Will post up some information on these companies shortly. So a HOLD+ recommendation for FBU means...if an investor doesn't hold any, even at $9.85 they could consider adding it to their portfolio. I have never regreted buying FBU.

[Nevl]

thanks for the news letter Deane and keep up the good work.

[kura]

Metro, (as you are touting for subscriptions) you are effectively using this forum as a way of free advertising, which I personally dislike.

Could I suggest you get some official arrangement with Mr Share Trader, so at least they get some sort of cut, out of any subscriptions received to cover cost of providing this forum.

I'm not knocking the contents of article, and could be tempted to subscribe myself, but I just think you are going about it the wrong way !

[metro]

Kura. I have noted your comments. As I rather like this forum and value everyones opinions and participation I will approach Mr Sharetrader as you suggest.

This forum has for many years kept me in touch with like minded individuals - and if it was not for this forum I would not have as much opportunity to do that - plus I've made some great friends here - so I'm grateful.

[Rif-Raf]

Forums are for people to share opinions and the better the quality of postings then the better we all are. I don't consider Metro's posts to be in the category of spam, there's no copyright breaches as it's his own material and if he chooses to give away some of his advice that he may otherwise be able to charge for then that's his good/bad luck.

Give Metro a break!!!

[Snow Leopard]

Financials:

Gross Dividends Per Share: 28.36
Dividend Yield: 4.2
Tax Adjusted Dividend Yield 2.2%

28.36(cps I presume) would be 19c+imp+etc and for a half year not a full years divvies
4.2(% ?) is plain wrong, even for the half year.
2.2% implies a price of $8.64 if we are talking about the 19c

Do you want to try
divvy last year 40cps, gross divvy last year 59.7cps
as a percentage: 4.1% and (gross) 6.1% at a SP of $9.85

regards

Paper Tiger

[Snow Leopard]

Metro, what does each edition of your newsletter actually consist of ?
How many of these company analysis? What else?