Earthquake rebuild delays hurt Fletchers

Chief executive Jonathan Ling says Fletcher is ready to increase its Christchurch activities. Photo / Paul Estcourt

Fletcher is poised to be a major beneficiary of the Canterbury rebuild but ongoing aftershocks, including the earthquake on December 23, have stalled the work.

The business underperformed by posting a 13 per cent interim profit drop yesterday and cut its full-year forecast based on projected weak demand for home building and charges to restructure its Laminex unit.

Chief executive Jonathan Ling said the company was ready to increase its Christchurch activities. "With the Canterbury rebuild, we expect a gradual lift in activity forecast over the calendar year for 2012, following the setback of December 23.

"Continued seismic activity delays reconstruction efforts, albeit smaller repairs continue to gain momentum," he said, noting Fletcher was the Earthquake Commission's agent.

He updated progress on repairs, saying 35,000 emergency fixes had been completed in Christchurch, 9200 full-scope repairs finished, and a further 30,000 were under way or progressing. More than 1000 firms were contracted to do the work involving about 11,000 people, he said.

Fletcher is planning a new PlaceMakers in Christchurch, following irreparable damage to its Antigua St outlet and expects to have four big shops there soon.

Fletcher's plasterboard factory, running at 30 to 40 per cent capacity for the last decade, had terrific capacity to deliver to Christchurch what it needed, Ling said.

"We're heavily involved in the demolition of the CBD. Of the 1500 buildings to be demolished, 350 are left to go and many are the bigger more complex ones," he said, referring to Fletcher's involvement in demolishing the Hotel Grand Chancellor.

Analysts were philosophical about the half-year result and outlook, Matt Henry of Goldman Sachs upgrading the stock in the last week to a buy with a $7.70 price on the company. Shares closed yesterday at $6.51, down 13c.

Henry said the results were "perhaps a little ahead of what we forecast".

He cited New Zealand house price rises of 3 per cent last year, Auckland up 7.5 per cent and rents up 6 to 8 per cent, saying Fletcher was well-positioned to benefit from rising demand and for that to filter through in the next 12 months.

Craig Brown of institutional investor OnePath highlighted Fletcher Construction's $1.2 billion backlog, well up on the $885 million at this time last year.

"It's a tough old world and they're doing as good a job as they can. There are a lot of issues to be resolved with Christchurch from a whole lot of different perspectives," Brown said.

Emily Behncke of Deutsche Bank in Sydney said the interim results were in line with expectations and the $144 million was ahead of her firm's forecast $141 million. But she noted the outlook and reduced guidance would disappoint the market. Earnings before interest and tax were 6 per cent below Deutsche Bank's expectations.

"Management downgraded the full-year expectations to a net after-tax profit range of $310 million to $340 million - previous guidance was a flat $359 million - representing approximately 10 per cent reduction to expectations.

"Guidance is predicated on modest New Zealand housing increases and no Australian housing increases.

"The Christchurch rebuild is now expected to commence in earnest from the 2013 calendar year when it was previously the second half of 2012, in line with Deutsche Bank's expectations.

"Management has also announced strategic reviews for its Laminex and the Australian and New Zealand insulation businesses," she said.

Deutsche Bank has had a hold recommendation on the stock since last year and issued a target price of just $6.96.