House construction, Canterbury rebuild and cost-cutting tipped to lift firm's performance.

A house construction rebound here and in Australia, the earthquake rebuild and cost-cutting will boost operating earnings from Fletcher Building's interim result by around 25 per cent in the second half of the financial year, say two analysts.

Sydney-based Deutsche Bank Markets Research's Emily Behncke and John Hynd said after last month's half-year result the revenue surge would come from a combination of these factors.

The New Zealand housing recovery was continuing with consents up an annual 26 per cent and Australia's housing recovery continued with approvals up 16 per cent, both in the December year.

The Canterbury rebuild remained a positive contributor to earnings and cost- cutting under the FBUnite scheme introduced by Fletcher chief executive Mark Adamson would slash costs by $75 million to $100 million, they said.


Fletcher issued market guidance that earnings before interest, tax and significant items would be in the range of $610 million to $650 million for the year to June.

The analysts noted how management had advised the Canterbury rebuild would now extend beyond EQR work and residential repairs to include tendering for some of the larger infrastructure projects.

Behncke and Hynd said this was another positive because Fletcher could catch the next stage of reconstruction, and they retained their buy recommendation.

Analysis from a number of firms expressed a degree of disappointment with last month's result. Behncke and Hynd said that $154 million was below their expectations of $187 million.

Morningstar was among the most bearish, issuing a reduce rating on Fletcher shares in its latest report, also saying the first-half result was below expectations.

It flagged potential trouble from competition, saying the sector had low barriers to entry and warned that largely commoditised products would continue to hamper Fletcher's ability to build sustainable competitive advantages.

Fletcher Building said the total benefit from its FBUnite scheme was expected to be about $100 million a year once fully rolled out.

The company's shares closed at $9.42 on Friday, having gained 91c, or 10.7 per cent, this year.


Goldman Sachs analyst Matt Henry revised the 12-month share price target from $8.90 to $9.75, but he also noted how the first-half result was below expectation.

New Zealand's strong economic outlook, Australia's house building recovery, the fact that Fletcher usually did better in the second-half and the FBUnite cost savings target all left him comfortable that the full-year guidance of $610 million to $650 million of earnings before interest, tax and significant items could be met.

Andrew Scott and Niraj Shah of CIMB also said the first-half was below their expectations.

"While the New Zealand market is providing a strong level of base demand, the group's significant Australian exposure remains the key headwinds for profitability," they said. "The key positive was the lifting of the FBUnite cost-out targets ..."