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 weekly</h2>
New Zealand
<ul>
<li>Residential consents remain strong (Aug.): +0.8% mom, +12.2% yoy (previous -1.3% mom, +18.3% yoy) including houses +10% yoy and multi-tenanted dwellings +16%.&nbsp;Non-residential looks like it is starting to ease: value consented down -8% yoy with sqm -38% taking the past 12 months to +12% and +8% respectively.</li>
<li>Demand from owner-occupiers robust; investors remain on strike (new mortgage lending, Aug.): New mortgage lending flat yoy with owner-occupiers +6% offset by continued weakness from investors down -18%.</li>
<li>Housing inventory tight nationwide (<a href="http://realestate.co.nz/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://realestate.co.nz&amp;source=gmail&amp;ust=1570059141330000&amp;usg=AFQjCNEtvSawyvkUEQ77ELam6ZEcaVaC-w" rel="noopener">realestate.co.nz</a>, Sep.):&nbsp;Auckland property inventory -8% yoy on total new listings down -23%. Ex-Auckland inventory -7% yoy on new listings -9%.</li>
<li>Construction crane count pulls back from record level (RLB Crane Index, 3Q): 131 tower cranes -17 hoh, -9 yoy led lower by Christchurch down -9 hoh/-13 yoy. The largest sector declines were in retail -12 yoy and hotels -4, offset in part by infrastructure/civil +8.&nbsp;<a href="https://s28259.pcdn.co/wp-content/uploads/2019/09/RLB-NZ-Crane-Index_Q3_2019.pdf" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s28259.pcdn.co/wp-content/uploads/2019/09/RLB-NZ-Crane-Index_Q3_2019.pdf&amp;source=gmail&amp;ust=1570059141330000&amp;usg=AFQjCNHgMhsuoYr9oaACYf2_XPV56dDn1A" rel="noopener">RLB Crane Index</a></li>
<li>Construction confidence drops sharply (but has been volatile) (ANZ Business Outlook, Aug.): Residential -19.2 (previous -4.0), Commercial -12.5 (previous -4.0). Own activity outlook of -7.1 suggests modest softening in construction activity.</li>
<li>Watercare signs long-term construction contract with Fulton Hogan and Fletcher Construction:&nbsp;Winning non-roading projects is important medium-term given the likely decline in major roading projects under the current government.&nbsp;<a href="https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&amp;objectid=12271583" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.nzherald.co.nz/business/news/article.cfm?c_id%3D3%26objectid%3D12271583&amp;source=gmail&amp;ust=1570059141330000&amp;usg=AFQjCNFJUnhTEEmGtkAdYcunmLdzItn5uA" rel="noopener">Watercare inks $2.4b 10-year contract with Fulton Hogan, Fletcher Construction</a></li>
<li>New government procurement policies aim to “boost the resilience of construction companies”:&nbsp;It aims to deliver&nbsp;“fairer pricing, fairer margins, and less likelihood of unexpected financial shocks.”.&nbsp;<a href="https://www.beehive.govt.nz/release/new-rules-help-construction-companies" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.beehive.govt.nz/release/new-rules-help-construction-companies&amp;source=gmail&amp;ust=1570059141330000&amp;usg=AFQjCNFYKjv6UYZZDdln5BOpetGniplhpw" rel="noopener">New rules to help construction companies</a></li>
<li>Steel &amp; Tube pulls back on medium-term targets:&nbsp;STU did not provide FY20 guidance at its ASM highlighting the uncertainty from “a continuation of current adverse market trends, coupled with softening business confidence, and ongoing competitive intensity across majority of sectors”. It also expects it will now “take longer to achieve” its NZ$30-35m FY21 EBIT target (was originally NZ$35-40m) which underpinned its equity raising last year. These are not surprising, and highlight the competitive industry in which STU operates and its inherent earnings uncertainty.</li>
</ul>
Australia
<ul>
<li>Residential approvals remain weak (Aug): -1.1% mom, -21.5% yoy (previous -9.7% mom, -28.2% yoy) including multi-tenanted -28% yoy and detached dwellings -17%.&nbsp;A strong month in non-residential: +54.0% mom, +89.2% yoy. Trend series +5.7% mom, +36.2% yoy. Past 12 months +1% yoy.</li>
<li>Further lift in Sydney and Melbourne house prices (CoreLogic-RPData, capital cities, Sep.): +1.1% mom, -4.5% yoy (previous +1.0% mom, -6.1% yoy). Sydney and Melbourne were both up +1.7% mom.</li>
<li>Cycle hits Brickworks’ AU Building Products (FY19; July YE.): Revenue down -4%, plus a A$12m lift in (mainly energy) costs, leveraged through to EBITDA -18% and EBIT -27%. “Whilst orders and sales are currently steady in most divisions, a soft 1H20 is anticipated. In the 2H, we expect the market to strengthen, based on the current level of home builder sales.”</li>
</ul>
International
<ul>
<li>US: Lower mortgage rates helping housing demand:</li>
</ul>
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bounce in permits and starts&nbsp;(Aug.): Permits +7.7% mom, +12.0% yoy (previous +6.9% mom, +0.1% yoy), with single-family dwellings up +4% yoy and volatile multi-family up +26%. Starts +12.3% mom, +6.6% yoy (previous -1.5% mom, +2.6% yoy) on single-family +3% yoy and multi-family +14%.
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jump in new home sales&nbsp;(Aug.): +7.1% mom, +18.0% yoy (previous -8.6% mom, +9.4% yoy).
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KB Home benefiting from demand boost over the past six months&nbsp;(3Q19): New orders up +24% (number of houses). New orders have strengthened in 2Q/3Q19 as the fall in rates has lowered “consumers’ heightened affordability concerns (which) tempered homebuyer demand in the latter part of 2018”. “Factors driving demand remain favourable, with job and wage growth, high consumer confidence, increasing household formation and demand from millennials … Supply of resale homes remains low and there has been an underproduction of new homes over a multi-year period.”
Matt Henry&nbsp;CFA
Director / Senior Analyst, Equities&nbsp;
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+64 (9) 368 0115
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TF:
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0800 367 227
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+64 (9) 368 0092
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PO Box 97, Auckland 1140
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<a href="http://www.forsythbarr.co.nz/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://www.forsythbarr.co.nz&amp;source=gmail&amp;ust=1570059141330000&amp;usg=AFQjCNGYeJkRTCpUa2dq3Y3UDDfRzTPEgA" rel="noopener">www.forsythbarr.co.nz</a>
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<td>Twitter:</td>
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<a href="http://twitter.com/forsythbarr" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://twitter.com/forsythbarr&amp;source=gmail&amp;ust=1570059141330000&amp;usg=AFQjCNGKzH7Cnu-RLpE8OL6RZ6yC23fZ3w" rel="noopener">@forsythbarr</a>
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</table>

Building weekly
New Zealand

Residential consents remain strong (Aug.): +0.8% mom, +12.2% yoy (previous -1.3% mom, +18.3% yoy) including houses +10% yoy and multi-tenanted dwellings +16%.&nbsp;Non-residential looks like it is starting to ease: value consented down -8% yoy with sqm -38% taking the past 12 months to +12% and +8% respectively.
Demand from owner-occupiers robust; investors remain on strike (new mortgage lending, Aug.): New mortgage lending flat yoy with owner-occupiers +6% offset by continued weakness from investors down -18%.
Housing inventory tight nationwide (realestate.co.nz, Sep.):&nbsp;Auckland property inventory -8% yoy on total new listings down -23%. Ex-Auckland inventory -7% yoy on new listings -9%.
Construction crane count pulls back from record level (RLB Crane Index, 3Q): 131 tower cranes -17 hoh, -9 yoy led lower by Christchurch down -9 hoh/-13 yoy. The largest sector declines were in retail -12 yoy and hotels -4, offset in part by infrastructure/civil +8.&nbsp;RLB Crane Index
Construction confidence drops sharply (but has been volatile) (ANZ Business Outlook, Aug.): Residential -19.2 (previous -4.0), Commercial -12.5 (previous -4.0). Own activity outlook of -7.1 suggests modest softening in construction activity.
Watercare signs long-term construction contract with Fulton Hogan and Fletcher Construction:&nbsp;Winning non-roading projects is important medium-term given the likely decline in major roading projects under the current government.&nbsp;Watercare inks $2.4b 10-year contract with Fulton Hogan, Fletcher Construction
New government procurement policies aim to “boost the resilience of construction companies”:&nbsp;It aims to deliver&nbsp;“fairer pricing, fairer margins, and less likelihood of unexpected financial shocks.”.&nbsp;New rules to help construction companies
Steel &amp; Tube pulls back on medium-term targets:&nbsp;STU did not provide FY20 guidance at its ASM highlighting the uncertainty from “a continuation of current adverse market trends, coupled with softening business confidence, and ongoing competitive intensity across majority of sectors”. It also expects it will now “take longer to achieve” its NZ$30-35m FY21 EBIT target (was originally NZ$35-40m) which underpinned its equity raising last year. These are not surprising, and highlight the competitive industry in which STU operates and its inherent earnings uncertainty.

Australia

Residential approvals remain weak (Aug): -1.1% mom, -21.5% yoy (previous -9.7% mom, -28.2% yoy) including multi-tenanted -28% yoy and detached dwellings -17%.&nbsp;A strong month in non-residential: +54.0% mom, +89.2% yoy. Trend series +5.7% mom, +36.2% yoy. Past 12 months +1% yoy.
Further lift in Sydney and Melbourne house prices (CoreLogic-RPData, capital cities, Sep.): +1.1% mom, -4.5% yoy (previous +1.0% mom, -6.1% yoy). Sydney and Melbourne were both up +1.7% mom.
Cycle hits Brickworks’ AU Building Products (FY19; July YE.): Revenue down -4%, plus a A$12m lift in (mainly energy) costs, leveraged through to EBITDA -18% and EBIT -27%. “Whilst orders and sales are currently steady in most divisions, a soft 1H20 is anticipated. In the 2H, we expect the market to strengthen, based on the current level of home builder sales.”

International

US: Lower mortgage rates helping housing demand:

-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bounce in permits and starts&nbsp;(Aug.): Permits +7.7% mom, +12.0% yoy (previous +6.9% mom, +0.1% yoy), with single-family dwellings up +4% yoy and volatile multi-family up +26%. Starts +12.3% mom, +6.6% yoy (previous -1.5% mom, +2.6% yoy) on single-family +3% yoy and multi-family +14%.
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jump in new home sales&nbsp;(Aug.): +7.1% mom, +18.0% yoy (previous -8.6% mom, +9.4% yoy).
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KB Home benefiting from demand boost over the past six months&nbsp;(3Q19): New orders up +24% (number of houses). New orders have strengthened in 2Q/3Q19 as the fall in rates has lowered “consumers’ heightened affordability concerns (which) tempered homebuyer demand in the latter part of 2018”. “Factors driving demand remain favourable, with job and wage growth, high consumer confidence, increasing household formation and demand from millennials … Supply of resale homes remains low and there has been an underproduction of new homes over a multi-year period.”
Matt Henry&nbsp;CFA
Director / Senior Analyst, Equities&nbsp;




T:


+64 (9) 368 0115




TF:


0800 367 227




F:


+64 (9) 368 0092




P:


PO Box 97, Auckland 1140








W:


www.forsythbarr.co.nz



Twitter:

@forsythbarr





Steel & Tube Holdings

Building Weekly