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>Fletcher Building<br>FY21 Preview&nbsp;—&nbsp;NZ Strength to Continue</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>FBU will report its FY21 results on Wednesday, 18 August 2021. Whilst much was pre-announced at June's investor day, we expect the result will reaffirm a business that is seeing strong demand in NZ but with some cost pressures that are largely being managed with price. Although FBU does not typically provide guidance at its full year result, we suspect FY22 outlook commentary to be continued strength in its NZ divisions but tempering of Australian expectations given the uncertainty created by&nbsp;lockdowns.</p>
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<h3>Key issues to watch for:</h3>
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<li><strong>Strong pick-up in earnings</strong>:&nbsp;FBU has guided to FY21 EBIT up +306%–316% vs. a pandemic stricken FY20 or -2–4% vs. FY19. Our FY21E EBIT comprises NZ core +26%, NZ&nbsp;homebuilding&nbsp;+9%, and AU +80% underpinned by robust demand and cost out</li>
<li><strong>Robust NZ demand</strong>:&nbsp;NZ consents have reached new records and concrete production has also stepped higher. Capacity constraints may limit&nbsp;a significant expansion in activity in FY22&nbsp;but on the positive side this likely elongates the cycle</li>
<li><strong>Cost pressures</strong>:&nbsp;We see the greatest risk of disappointment in NZ is from margins, given cost pressures. However,&nbsp;FBU's&nbsp;domestic manufacturing should benefit from lower import competition and a better pricing environment</li>
<li><strong>Margin expansion in Fletcher Living</strong>:&nbsp;We expect&nbsp;FBU's&nbsp;homebuilding&nbsp;margins to be supported by strong Auckland house prices and demand as well as sell down of low margin Christchurch units. Potential for further improvement in FY22</li>
<li><strong>Lockdowns&nbsp;moderate&nbsp;Australian outlook</strong>:&nbsp;Construction activity across the ditch has likely been disrupted. Low margins/high operating leverage likely compounds any impacts on FY22 outcomes, as such FY22 outlook statements are&nbsp;likely to be cautious</li>
<li><strong>Strong&nbsp;cashflow</strong>:&nbsp;We expect net debt to EBITDA to reduce&nbsp;to 0.3x. FBU has NZ$275m of its buyback to complete.</li>
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<h3>Investor briefing</h3>
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<p>Conference call: 11.00am (NZ time), Register for the briefing:&nbsp;<a href="https://s1.c-conf.com/diamondpass/10014879-537abs2.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s1.c-conf.com/diamondpass/10014879-537abs2.html&amp;source=gmail&amp;ust=1629245048610000&amp;usg=AFQjCNFuo2BX_8tgPvfj-EgS5YPgGfW4jQ" rel="noopener">https://s1.c-conf.<wbr>com/diamondpass/10014879-<wbr>537abs2.html</a>.&nbsp;&nbsp;Webcast:&nbsp;<a href="https://edge.media-server.com/mmc/p/s8c5jndn" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://edge.media-server.com/mmc/p/s8c5jndn&amp;source=gmail&amp;ust=1629245048611000&amp;usg=AFQjCNFB2VxnleZMuo5Nbc6bxPrvQNZDwA" rel="noopener">https:<wbr>//edge.media-server.com/mmc/p/<wbr>s8c5jndn</a></p>
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Fletcher Building FY21 Preview&nbsp;—&nbsp;NZ Strength to Continue

OUTPERFORM
FBU will report its FY21 results on Wednesday, 18 August 2021. Whilst much was pre-announced at June's investor day, we expect the result will reaffirm a business that is seeing strong demand in NZ but with some cost pressures that are largely being managed with price. Although FBU does not typically provide guidance at its full year result, we suspect FY22 outlook commentary to be continued strength in its NZ divisions but tempering of Australian expectations given the uncertainty created by&nbsp;lockdowns.


Key issues to watch for:



Strong pick-up in earnings:&nbsp;FBU has guided to FY21 EBIT up +306%–316% vs. a pandemic stricken FY20 or -2–4% vs. FY19. Our FY21E EBIT comprises NZ core +26%, NZ&nbsp;homebuilding&nbsp;+9%, and AU +80% underpinned by robust demand and cost out
Robust NZ demand:&nbsp;NZ consents have reached new records and concrete production has also stepped higher. Capacity constraints may limit&nbsp;a significant expansion in activity in FY22&nbsp;but on the positive side this likely elongates the cycle
Cost pressures:&nbsp;We see the greatest risk of disappointment in NZ is from margins, given cost pressures. However,&nbsp;FBU's&nbsp;domestic manufacturing should benefit from lower import competition and a better pricing environment
Margin expansion in Fletcher Living:&nbsp;We expect&nbsp;FBU's&nbsp;homebuilding&nbsp;margins to be supported by strong Auckland house prices and demand as well as sell down of low margin Christchurch units. Potential for further improvement in FY22
Lockdowns&nbsp;moderate&nbsp;Australian outlook:&nbsp;Construction activity across the ditch has likely been disrupted. Low margins/high operating leverage likely compounds any impacts on FY22 outcomes, as such FY22 outlook statements are&nbsp;likely to be cautious
Strong&nbsp;cashflow:&nbsp;We expect net debt to EBITDA to reduce&nbsp;to 0.3x. FBU has NZ$275m of its buyback to complete.



Investor briefing


Conference call: 11.00am (NZ time), Register for the briefing:&nbsp;https://s1.c-conf.com/diamondpass/10014879-537abs2.html.&nbsp;&nbsp;Webcast:&nbsp;https://edge.media-server.com/mmc/p/s8c5jndn


Fletcher Building: FY21 Preview — NZ Strength to Continue