New Zealand Professional Investment Services Firm

Forsyth Barr

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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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Fletcher Building</h2>
ASM: Midpoint of guidance modestly below expectation
Fletcher Building’s (FBU) initial FY20 guidance of EBIT NZ$515-565m includes a +NZ$50m benefit from IFRS 16.
Excluding this IFRS 16 impact, the midpoint of the NZ$465-515m range is modestly below our current NZ$505m, and our NZ$512m estimate of FY19 normalised for one-off impacts.
It is difficult to benchmark guidance against broader analyst expectations, given only c.½ have adjusted numbers for IFRS 16. Our read, is it looks to be at least a modest disappointment vs. forecasts, but we suspect this outcome was likely anticipated by the market.
There is little that surprises us in FBU’s trading commentary:
<ul>
<li>In NZ the performance of core divisions (Building Products, Concrete, and Distribution) “remains on track against a solid market backdrop”, underpinned by continued “strong” activity for residential and commercial finishing trades. Civil, infrastructure, and starting trades “is trending slightly lower as expected”. In the Residential division “demand for housing … remains strong and prices remain supportive”. “The steel market remains highly competitive.”</li>
<li>In Australia, the “cost-out programme is progressing to plan and there is good turnaround momentum in Laminex and Fletcher Insulation”. “Intense competitor activity in the declining residential market is placing ongoing pressure on price and margin in Stramit and Tradelink, while infrastructure project delays are expected to have some near-term impact on Iplex and Rocla in FY20”. Our concern in Australia is that, with a number of late-cycle products (Laminex, Tradelink), volumes decline further and materially from here.</li>
</ul>
Matt Henry &nbsp;CFA Head of Wealth Management Research Forsyth Barr Limited
P: +64 9 368 0115 &nbsp; TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Fletcher Building
ASM: Midpoint of guidance modestly below expectation
Fletcher Building’s (FBU) initial FY20 guidance of EBIT NZ$515-565m includes a +NZ$50m benefit from IFRS 16.
Excluding this IFRS 16 impact, the midpoint of the NZ$465-515m range is modestly below our current NZ$505m, and our NZ$512m estimate of FY19 normalised for one-off impacts.
It is difficult to benchmark guidance against broader analyst expectations, given only c.½ have adjusted numbers for IFRS 16. Our read, is it looks to be at least a modest disappointment vs. forecasts, but we suspect this outcome was likely anticipated by the market.
There is little that surprises us in FBU’s trading commentary:

In NZ the performance of core divisions (Building Products, Concrete, and Distribution) “remains on track against a solid market backdrop”, underpinned by continued “strong” activity for residential and commercial finishing trades. Civil, infrastructure, and starting trades “is trending slightly lower as expected”. In the Residential division “demand for housing … remains strong and prices remain supportive”. “The steel market remains highly competitive.”
In Australia, the “cost-out programme is progressing to plan and there is good turnaround momentum in Laminex and Fletcher Insulation”. “Intense competitor activity in the declining residential market is placing ongoing pressure on price and margin in Stramit and Tradelink, while infrastructure project delays are expected to have some near-term impact on Iplex and Rocla in FY20”. Our concern in Australia is that, with a number of late-cycle products (Laminex, Tradelink), volumes decline further and materially from here.

Matt Henry &nbsp;CFA Head of Wealth Management Research Forsyth Barr Limited
P: +64 9 368 0115 &nbsp; TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Fletcher Building: ASM: Midpoint of Guidance Modestly Below Expectation