New Zealand Professional Investment Services Firm

Forsyth Barr

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.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Building Sector<br>Ready-Mix Concrete&nbsp;— Momentum Continues</h2>
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<p>Ready-mix concrete (RMC) production volumes&nbsp;were up strongly in 1Q21 but versus a&nbsp;pcp&nbsp;that included the initial impacts of the pandemic and the first week of&nbsp;lockdown. While volumes have moderated slightly from the record levels that ended 2020 they remain robust and were +3% vs. 1Q19.&nbsp;We expect RMC production to remain at elevated levels through 1H21 given historically high residential consent volumes, improving non-residential consents and solid industry confidence. Fletcher Building (FBU) had noted that January and February were softer than anticipated, however, 1Q21 RMC volumes&nbsp;highlight that NZ demand should not be a problem for building-related companies. FBU will provide an update on its trading performance at its upcoming investor day on 26&nbsp;May 2021.</p>
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<h3>Volumes robust</h3>
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<div id="m_2671767710973446699ikqui-2-2-2">
<p>Volumes, which can be volatile from quarter-to-quarter, were up +9%&nbsp;yoy&nbsp;but were down -5%&nbsp;qoq&nbsp;(seasonally adjusted) after a very strong end to 2020. Industry anecdotes suggested there was a slower than normal start to 2021 but that activity is now back to robust&nbsp;levels. Volumes were robust across most regions with Wellington being the largest laggard. While Canterbury volumes&nbsp;remain&nbsp;at subdued levels, with the rebuild phase now largely complete, they&nbsp;look to have stabilised. Rolling 12 month volumes were down -2%&nbsp;yoy.&nbsp;We are starting to cycle quarters impacted by the pandemic&nbsp;lockdowns&nbsp;and as such&nbsp;yoy&nbsp;comparisons become difficult; using 1Q19 as a baseline volumes were +3%.</p>
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<h3>Supportive for building-related companies</h3>
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<div id="m_2671767710973446699i106i-2-2-2">
<p>RMC production is the first indicator of NZ construction activity for 1Q CY21 and a significant exposure for FBU. 2H20 RMC volumes proved to be a solid guide to FBU's 1H21 NZ revenue growth (ex. construction and residential development). As such, current RMC volumes are supportive of building-related companies top lines, assuming supply chain disruption have been managed. FBU noted that the key driver of its NZ$610m–660m EBIT guidance range is 2H FY21 volumes within its AU and NZ core divisions. Margin outcomes are more opaque with cost pressures&nbsp; potentially being more than offset by a favourable pricing environment. More colour on the current operating environment will come from Metro Performance Glass (MPG), which reports its FY21 result on 21 May, and FBU, which is hosting an investor day on 26 May.</p>
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<div><strong>Rohan Koreman-Smit, CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
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Building Sector Ready-Mix Concrete&nbsp;— Momentum Continues


Ready-mix concrete (RMC) production volumes&nbsp;were up strongly in 1Q21 but versus a&nbsp;pcp&nbsp;that included the initial impacts of the pandemic and the first week of&nbsp;lockdown. While volumes have moderated slightly from the record levels that ended 2020 they remain robust and were +3% vs. 1Q19.&nbsp;We expect RMC production to remain at elevated levels through 1H21 given historically high residential consent volumes, improving non-residential consents and solid industry confidence. Fletcher Building (FBU) had noted that January and February were softer than anticipated, however, 1Q21 RMC volumes&nbsp;highlight that NZ demand should not be a problem for building-related companies. FBU will provide an update on its trading performance at its upcoming investor day on 26&nbsp;May 2021.


Volumes robust


Volumes, which can be volatile from quarter-to-quarter, were up +9%&nbsp;yoy&nbsp;but were down -5%&nbsp;qoq&nbsp;(seasonally adjusted) after a very strong end to 2020. Industry anecdotes suggested there was a slower than normal start to 2021 but that activity is now back to robust&nbsp;levels. Volumes were robust across most regions with Wellington being the largest laggard. While Canterbury volumes&nbsp;remain&nbsp;at subdued levels, with the rebuild phase now largely complete, they&nbsp;look to have stabilised. Rolling 12 month volumes were down -2%&nbsp;yoy.&nbsp;We are starting to cycle quarters impacted by the pandemic&nbsp;lockdowns&nbsp;and as such&nbsp;yoy&nbsp;comparisons become difficult; using 1Q19 as a baseline volumes were +3%.


Supportive for building-related companies


RMC production is the first indicator of NZ construction activity for 1Q CY21 and a significant exposure for FBU. 2H20 RMC volumes proved to be a solid guide to FBU's 1H21 NZ revenue growth (ex. construction and residential development). As such, current RMC volumes are supportive of building-related companies top lines, assuming supply chain disruption have been managed. FBU noted that the key driver of its NZ$610m–660m EBIT guidance range is 2H FY21 volumes within its AU and NZ core divisions. Margin outcomes are more opaque with cost pressures&nbsp; potentially being more than offset by a favourable pricing environment. More colour on the current operating environment will come from Metro Performance Glass (MPG), which reports its FY21 result on 21 May, and FBU, which is hosting an investor day on 26 May.



Rohan Koreman-Smit, CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Building Sector: Ready-Mix Concrete — Momentum Continues