Australian fund adds to Fletcher stake

INVESTORS are taking a waitandsee approach as Fletcher Building shares rise as an Australian investment fund continues to build its stake in the New Zealand company

Ellerston Capital’s interest in Fletcher Building has passed 5.1%, requiring the Australian fund manager to make a statement to the ASX and NZX

However, its interest in the construction and building materials company has been no secret.

Ellerston holds Fletcher in at least two of the funds it manages. In its Ellerston Australian Share Fund, the firm namechecks Fletcher as one of three turnaround stories — ‘‘sound businesses that have historically generated poor returns or underearned versus their potential, are in transition and where we think earnings/ returns will improve over the medium term’’.

Craigs Investment broker Chris Timms said 5% was a long way away from a takeover bid but said Ellerston could creep up to a 19% stake without making any formal offer.

It was unclear if Wesfarmers was behind the bid and brokers were watching with interest as events unfolded.

Asked if Fletcher was a likely takeover target, Mr Timms said any New Zealand company was a takeover target in the current business climate.

The beneficiaries of the Ellerston buying had been existing shareholders. Last Thursday, the shares closed at $5.84. On Friday, shares traded as high as $6.66 and yesterday, they traded about $6.50 for most of the day.

‘‘Without the Ellerston interest, shares would still be trading below $6,’‘ Mr Timms said.

If Ellerston bought at the low of $5.84 a share, it could have paid about $208.9 million.

The fund manager, which oversees about $A5 billion ($NZ5.3 billion) in investments, also holds Fletcher for its Ellerston Australian Market Neutral Fund — one of two investments in the building materials sector that it holds along with Adelaide Brighton. Ellerston has been buying Fletcher in the face of the company’s ongoing bad news.

‘‘We added to our pair within the building materials sector, with both Fletcher Building [5.1%] and Adelaide Brighton [3.0%] underperforming the

broader market,’’ Ellerston said in a March fund report.

Fletcher Building said on Friday it knew nothing about the report.

Fletcher slumped to a $273 million loss in its first half, driven by losses at its Building + Interiors unit, and chief executive Ross Taylor has embarked on a strategic review of the entire company. , It had to get waivers from lenders after breaching covenants and is still in talks with its United States noteholders and bank syndicate to negotiate new lending terms.

That led to speculation the company could shed noncore businesses although Mr Taylor has said the problems are largely confined to B+I .

Whether Ellerston has bought on behalf of giant Australian business Wesfarmers remains unknown.

On Friday, Fletcher rejected speculation about Wesfarmers, which owns the Bunnings and Kmart businesses here.

‘‘The company has no knowledge of Wesfarmers owning Fletcher Building shares, therefore it can neither confirm nor deny the report,’’ it said.

Fletcher is duallisted on the ASX and NZX.