New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<ul><li>We lower our Fletcher Building (FBU) rating from OUTPERFORM to NEUTRAL, and reduce our 12-month target price to NZ$3.80.</li><li>There were few redeeming features in today's trading update, with the core materials and distribution businesses bearing the brunt of the cyclical downturn (although channel checks suggest more so than some peers) while the lower multiple residential development and construction divisions are faring better.</li><li>With guidance for debt to remain elevated in 2H24, questions around FBU's balance sheet linger. </li></ul>

We lower our Fletcher Building (FBU) rating from OUTPERFORM to NEUTRAL, and reduce our 12-month target price to NZ$3.80.There were few redeeming features in today's trading update, with the core materials and distribution businesses bearing the brunt of the cyclical downturn (although channel checks suggest more so than some peers) while the lower multiple residential development and construction divisions are faring better.With guidance for debt to remain elevated in 2H24, questions around FBU's balance sheet linger. 

Fletcher Building - In the Balance, Down to NEUTRAL

<ul><li>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.</li><li>However, group performance has been dragged down by issues in Construction and Australia. The question is: are these over?</li><li>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. </li></ul>

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. 

<ul><li>Fletcher Building (FBU) has added a further NZ$180m of provisions in its construction division, largely relating to the NZ International Convention Centre (NZICC).</li><li>This is particularly disappointing given it has been just six months since the last one and continues to bring into question management controls and board oversight.</li><li>The ultimate cash cost will see gearing reach the top end of FBU's target range and we expect a reduction in dividends and cuts to the growth capex pipeline at its upcoming 1H24 result (14 February) to provide some headroom. </li></ul>

Fletcher Building (FBU) has added a further NZ$180m of provisions in its construction division, largely relating to the NZ International Convention Centre (NZICC).This is particularly disappointing given it has been just six months since the last one and continues to bring into question management controls and board oversight.The ultimate cash cost will see gearing reach the top end of FBU's target range and we expect a reduction in dividends and cuts to the growth capex pipeline at its upcoming 1H24 result (14 February) to provide some headroom. 

Fletcher Building  - NZICC Steels More Cash

Thematic (Sector/Industry)

<ul><li>Residential consents were down slightly in April but remain within the 30–35k range they have tracked over the last nine months.</li><li>This range is c.35% below the mid-2022 peak of 51.0k, a level in excess of industry capacity.</li><li>Residential construction activity is declining, with higher interest rates, inflated construction costs, and lower house prices all contributing. </li></ul>

Residential consents were down slightly in April but remain within the 30–35k range they have tracked over the last nine months.This range is c.35% below the mid-2022 peak of 51.0k, a level in excess of industry capacity.Residential construction activity is declining, with higher interest rates, inflated construction costs, and lower house prices all contributing. 

Building Sector - NZ Consents — On a Level

<div id="m_8317410814445020341iubdj-2-2-2"><ul><li>December quarter ready-mix concrete (RMC) production continued the downward trend that began early in 2022.</li><li>Volumes in 2023 were down -11% on the prior year and -12% for the December quarter.</li><li>December volumes were broadly in line with pre-pandemic levels in Auckland, with declines more pronounced across the rest of the country. </li></ul></div>

December quarter ready-mix concrete (RMC) production continued the downward trend that began early in 2022.Volumes in 2023 were down -11% on the prior year and -12% for the December quarter.December volumes were broadly in line with pre-pandemic levels in Auckland, with declines more pronounced across the rest of the country. 

Building Sector - Ready-Mix Concrete — Cementing 2023

New Zealand

Fletcher Building Limited manufactures, distributes, and sells materials for the building industry including wood fiber-based products, cement and aggregates, plasterboard, laminates, lumber, and aluminium extrusion. The Company operates primarily in New Zealand and Australia.

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Fletcher Building (FBU NZ)

Fletcher Building - In the Balance, Down to NEUTRAL

We lower our Fletcher Building (FBU) rating from OUTPERFORM to NEUTRAL, and reduce our 12-month target price to NZ$3.80. There were few redeeming...

Forsyth Barr

Fletcher Building - A House Under Repair

Fletcher Building's (FBU) 1H24 result and FY24 guidance was disappointing. FBU does have some good NZ businesses with strong market positions...

Forsyth Barr

Fletcher Building - NZICC Steels More Cash

Fletcher Building (FBU) has added a further NZ$180m of provisions in its construction division, largely relating to the NZ International...

Forsyth Barr

Building Sector - NZ Consents — On a Level

Residential consents were down slightly in April but remain within the 30–35k range they have tracked over the last nine months.

Forsyth Barr

Building Sector - Ready-Mix Concrete — Cementing 2023

December volumes were broadly in line with pre-pandemic levels in Auckland, with declines more pronounced across the rest of the country.

Forsyth Barr

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