Confidence in Fletcher still low
CONFIDENCE in Fletcher Building remains low as its share price languishes near a decadelow level of around $5.85.
It has shed shed $1.6 billion in market capitalisation during the past six months.
Accumulated and estimated losses from Fletcher’s Building + Interiors (B+I) division over the past two financial years stand at $952 million, the lion’s share from the Auckland international convention centre and hotel and the Christchurch justice precinct
After breaking banking covenants, Fletcher is in a secondwaiver round of talks to renegotiate its banking terms by the end of May.
The company is at risk of falling out of the NZX top 10 companies index as well as the eightcompany MSCI New Zealand index, which could prompt the exit of some larger institutional investors, while analysts continue to speculate on the need for a capitalraising, alongside asset sales.
Fletcher is eighth in the NZX top 10 at $4.05 billion market capitalisation, ahead of Contact Energy (ninth at $3.76 billion) and Air New Zealand (10th at $3.75 billion).
Craigs Investment Partners broker Peter McIntyre said Fletcher would only have to lose about $300 million market capitalisation to be replaced in the top 10.
That could prompt a ‘‘lightening’’ with some institutional investors exiting the stock.
‘‘We’ve been positive on the stock, but in the past six months have become more neutral and are now beginning to lose patience,’’ Mr McIntyre said.
New research on Fletcher from Craigs said for fullyear 2018, Fletcher now expected to make an earnings before interest and tax loss of $660 million, up from $160 million ‘‘just months earlier’’.
During the past 13 years, Fletcher had continued to buy offshore businesses, which had consistently failed to perform to the same standards as the original domestic operations, Mr McIntyre said.
‘‘Any business [Fletcher division] could potentially be for sale, at the right price,’’ Mr McIntyre said yesterday.
In recent years, New Zealand business had been performing ‘‘reasonably well’’, because of the Christchurch rebuild, buoyant Auckland property market and higher national gross domestic product growth.
‘‘More recently, the [New Zealand] construction business has been the primary driver of downgrades with the [Christchurch] Justice Precinct and Skycity projects [conference centre and hotel in Auckland] both incurring losses,’’ he said.
It was understood most of 14 B+I’s contracts were undertaken at a fixed contract price.
Fletcher has quit bidding on large commercial projects, in
❛ We’re unlikely to see Fletcher in a ‘steady state’ for some time yet and expect asset sales over the next 12 months Craigs Investment Partners
broker Peter McIntyre
order to complete the B+I projects, and continued working in the residential and infrastructure sectors.
When Fletcher’s predicament became apparent and began unravelling last year, its chief executive, Mark Adam son, left immediately, and was replaced by Ross Taylor to undertake restructuring, while chairman Sir Ralph Norris resigned in midFebruary; when the cumulative near $1 billion losses were confirmed.
Asked about potential broker downgrades, Mr McIntyre said the effects had been priced into targets already, given the midFebruary downgrade was the fifth in the past year.
‘‘We’re unlikely to see Fletcher in a ‘steady state’ for some time yet and expect asset sales over the next 12 months.
‘‘It’s unsurprising that our confidence levels towards Fletcher remain low,’’ he said.
During the past six months, Fletcher shares had traded at a high of $8.05 to a low of $5.74; having hit a high of $11.02 in September 2016.
Fletcher shares were up slightly at $6.01 yesterday, but down over 25% on a year ago.
‘‘We remain cautious on the outlook with further losses possible; likely in the infrastructure or commercial projects and potential flow on impacts to other parts of the business,’’ Mr McIntyre said.
Fletcher maintained no change to its estimated fullyear earnings before interest and tax range of $680 million to $720 million, which it has separated away from the unchanged, estimated B+I loss of $660 million.