Fletcher profit tipped to build

Photo / NZ Herald

Fletcher Building is projected to increase bottom-line profit by two-thirds and make more than $400 million by 2012.

Analyst Rob Mercer of Forsyth Barr yesterday predicted rising fortunes for the business, which he picks will make $368.8 million net after-tax profit in the June 2011 year but $439.2 million by June 2012.

"This is a big company now, the No 1 listed in New Zealand and we expect it should be able to have a goal of getting reported earnings up towards the $500 million level again," he said.

Fletcher yesterday released its full-year result, turning 2009's $46 million bottom-line loss into a $272 million net after-tax profit, although its net profit before unusual items fell 4 per cent from $314 million to $301 million.

Jonathan Ling, Fletcher Building's chief executive, said caution formulated the outlook for results for the year to June 2011. The effects of the financial crisis were still being felt around the world and uncertainty continued about the timing and pace of recovery.

An earnings guidance would be issued at November 17's annual meeting in Auckland, he said, but he was more bullish about residential construction and more bearish about infrastructure and large commercial building jobs.

Matthew Henry, of Goldman Sachs JBWere, is forecasting net after-tax profit of $354 million for the June 30, 2011, year, an uplift he said would be driven mainly by increased earnings from the New Zealand and Australian residential markets combined with further cost savings across the business.

Describing the business as "edging up out of the worst of it but not racing ahead", Henry said the result was in line with his expectations. Residential building recovered ahead of commercial construction. The company's better performance next year would be driven by recovering housing markets here and in Australia, he said.

Mercer and Henry said Fletcher met expectations and yesterday the stock closed up 16c, or 2.23 per cent, to $7.34.

Ling said Fletcher was in good shape. "We think we are through the worst of the recession and we have weathered the storm in pretty good shape. We are actively pursuing growth projects."

The firm's strategy involves spending about $150 million a year on plant and equipment; "organic growth" opportunities in new products, services and stores such as new or upgraded PlaceMakers; bolt-on acquisitions which were generally smaller but complemented existing businesses; and acquiring large business for more than $100 million.

Ling acknowledged Fletcher had massive untapped lending facilities and a gearing or debt-to-equity ratio of a low 27 per cent, well down on 2005's 44 per cent gearing.

"We have $1 billion unutilised banking facilities. But volatility and uncertainty in debt markets is still there and we think we need to keep the balance sheet conservative for another 12 months until we are sure there is stability in the world. Once we do, we will be taking our gearing back to 40-50 per cent."

Fletcher's hunt for buys could lead it into Asia or Australia, Ling said.

Infrastructure, headed by Mark Binns, is Fletcher's most profitable division, producing $1.8 billion in sales (compared to $1.9 billion last year) and operating earnings of $144 million (previously $185 million).

Laminates and panels, which includes Formica, had sales of $1.9 billion ($2 billion) and made $141 million ($74 million). Formica contributed operating earnings of $34 million, up on last year's $18 million and this year's result included $7 million redundancy costs.

Steel had sales of $1.1 billion ($1.3 billion) making $82 million ($154 million), PlaceMakers $878 million ($883 million) making $38 million ($30 million) and building products $798 million ($771 million) making $114 million ($106 million).

Ling said Fletcher was finishing some large jobs this financial year, including Eden Park, State Highway 20, the Hobson sewer line and the New Lynn rail trench and this would create some lumpiness in its work.

Shareholders get their final 15cps dividend on October 20.