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;— Record Setting</h2>
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<p>4Q20 ready-mix concrete (RMC) production confirmed&nbsp;NZ construction activity is going from strength to strength with volumes +5%qoq/+8%yoy&nbsp;in the December quarter. The second-half of 2020 was the strongest on record. Total production in 2020 was down -5% vs. 2019, largely due to soft volumes throughout&nbsp;lockdowns&nbsp;and weaker volumes in Canterbury as rebuild work comes to a conclusion. We expect production will remain near record levels in the first half of 2021 given historically high residential consent volumes and improving industry confidence. With strong momentum in the construction sector, we see upside risk to earnings forecasts in both Fletcher Building (FBU) and&nbsp;Steel &amp; Tube's (STU) upcoming results.</p>
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<h3>Record setting quarter and half</h3>
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<p>Volumes, which can be volatile from quarter-to-quarter, were up +5% qoq/+8% yoy after a very strong 3Q. Notably, production in the December quarter and December half-year were the highest on record. While some of this will be catch-up work from lockdown delays in the June quarter, we expect this is set to continue given improving construction confidence, a significant increase in construction employment, and anecdotes of a great earthworks season thus far. Production was particularly strong in Regional North Island, up +22%, and Auckland up +9%.&nbsp;&nbsp;</p>
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<h3>Strong end to the year suggests upside risk to forecasts</h3>
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<p>RMC production is the first NZ construction indicator for 4Q CY20 and a significant exposure for FBU. 3Q RMC volumes proved to be a solid guide to FBU's NZ revenue (ex. construction and residential development) and as such this strong end to the year aligns with our view that there is upside risk to consensus and our own forecasts. FBU will provide its 1H21 result on 17 February and STU also reports on 26 February. We expect NZ residential activity to remain robust, underpinned by low interest rates and tight supply, but partially offsetting this is the non-residential pipeline which has thinned and may weigh on activity over the year.</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>Ashton Olds</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
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Building Sector Ready-Mix Concrete&nbsp;— Record Setting


4Q20 ready-mix concrete (RMC) production confirmed&nbsp;NZ construction activity is going from strength to strength with volumes +5%qoq/+8%yoy&nbsp;in the December quarter. The second-half of 2020 was the strongest on record. Total production in 2020 was down -5% vs. 2019, largely due to soft volumes throughout&nbsp;lockdowns&nbsp;and weaker volumes in Canterbury as rebuild work comes to a conclusion. We expect production will remain near record levels in the first half of 2021 given historically high residential consent volumes and improving industry confidence. With strong momentum in the construction sector, we see upside risk to earnings forecasts in both Fletcher Building (FBU) and&nbsp;Steel &amp; Tube's (STU) upcoming results.


Record setting quarter and half


Volumes, which can be volatile from quarter-to-quarter, were up +5% qoq/+8% yoy after a very strong 3Q. Notably, production in the December quarter and December half-year were the highest on record. While some of this will be catch-up work from lockdown delays in the June quarter, we expect this is set to continue given improving construction confidence, a significant increase in construction employment, and anecdotes of a great earthworks season thus far. Production was particularly strong in Regional North Island, up +22%, and Auckland up +9%.&nbsp;&nbsp;


Strong end to the year suggests upside risk to forecasts


RMC production is the first NZ construction indicator for 4Q CY20 and a significant exposure for FBU. 3Q RMC volumes proved to be a solid guide to FBU's NZ revenue (ex. construction and residential development) and as such this strong end to the year aligns with our view that there is upside risk to consensus and our own forecasts. FBU will provide its 1H21 result on 17 February and STU also reports on 26 February. We expect NZ residential activity to remain robust, underpinned by low interest rates and tight supply, but partially offsetting this is the non-residential pipeline which has thinned and may weigh on activity over the year.



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





Ashton Olds
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



Building Sector: Ready-Mix Concrete — Record Setting