Fletcher Building on a roll of successes

Chief executive Jonathan Ling. Photo / Sarah Ivey

Takeover success, increased Australian market exposure and a turnaround in its United States-based Formica operation could spur New Zealand's biggest listed business on when it declares its interim result today.

Fletcher Building, with a market capitalisation of $5 billion, is projected to make a full-year net after-tax profit of $352 million to June 30, 2011, and just how far it has gone towards achieving that in the first half to December 31 will be revealed this morning.

Analysts say the company is on target, having already notched up several successes this month, including securing a rising stake in Australian plumbing and building supplies company Crane Group after starting with 14.9 per cent before Christmas.

Last week, Fletcher achieved an 18.8 per cent holding but yesterday announced it controlled 22 per cent of Crane, strengthening its off-market offer for 90 per cent due to close on Friday next week unless Fletcher decides to extend it.

Chief executive Jonathan Ling has already said that if Fletcher does not get to 90 per cent by that date, it might "take two bites of the cherry: take so much and control the business with more than 50 per cent and then a second takeover".

He took heart from the rising Crane stake and said acceptances this month included shareholdings owned or controlled by Crane chairman Leo Tutt and managing director Greg Sedgwick.

Crane's directors unanimously recommended shareholders accept Fletcher's offer, in the absence of a superior proposal.

Forsyth Barr analyst Rob Mercer predicted net after-tax profit of $191 million for the December half-year, up 19 per cent on 2010's result of $160 million. The increase would come from laminates and panels, steel and distribution, he predicted.

Stephen Hudson of Macquarie Equities Research said the result would include good news from Laminex Australia and Stramit as part of the Australian Government's Building the Education Revolution stimulus programme. Improvements would also come from Formica Asia and the United States, he predicted.

Matthew Henry of Goldman Sachs predicted net after-tax profit of $181 million, up 23 per cent, and said this would be driven by better conditions in New Zealand and Australian residential construction, the Australian Government's stimulus programme and Formica's cost-efficiency moves.

Fletcher is also now trading around its annual high of about $8.21.

Another big win last week was Fletcher's success in securing Australian Competition and Consumer Commission approval of its Crane acquisition.

Fletcher wants to diversify out of New Zealand and says its Crane takeover will allow strategic expansion into Australia, give it the ability to apply its successful operating model to another business and offer attractive financial fundamentals. Fletcher will produce 45 per cent of its revenue from Australia, up from 34 per cent, if it wins Crane.

One of the reasons it wants to move away from high reliance on New Zealand is the state of our markets, shown by a forecast from the New Zealand Institute of Economic Research for Rider Levett Bucknall.

The Canterbury earthquake would weigh on building activity in the short term, but reconstruction would be positive from the early part of this year, the NZIER said.

"The full extent of rehabilitation required is still unknown, but will increase activity over the following three years," the forecast said.

The non-residential building sector has slowed, but values are starting to stabilise. Building consents fell by 19.3 per cent in the past year. This indicates activity will soften in the coming year. High vacancy rates, lack of demand and a slowing economic recovery are the main constraints on activity.

Non-residential building investment is forecast to decline 23 per cent in New Zealand over the March 2011 year, stabilise in 2012 and return to growth from 2013. Investment might increase sooner if Canterbury reconstruction was fast tracked, the forecast said.

Fletcher Building shares closed down 4c at $8.21.

FLETCHER'S FUTURE

How the company could look after Friday next week:

* Building products: board, insulation, tiles.

* Infrastructure: Rocla, Humes, construction.

* Crane Group: Tradelink, Mastertrade, Mico, Corys, iPlex.

* Distribution: PlaceMakers, building materials.

* Steel: coated, long steel, Stramit, Easysteel.

* Laminates & panels: Laminex, Formica.

Source: Fletcher Building, divisional structure of combined group, December 15