30cps picked for Fletcher
FLETCHER Building is likely to pay a 30cpershare dividend for the year ending June and the payout will be skewed to the second half, after the $US840 million ($1.24 billion) sale of Formica has settled, FNZC analyst Arie Dekker says.
Fletcher, which is due to report its firsthalf results on February 20, said when it announced the Formica sale that it would resume paying dividends from the firsthalf payout this year.
Fletcher’s last payout was the final dividend of 19c per share for its 2017 financial year, when it paid out 39c in total.
Mr Dekker has raised his forecasts for the building products and construction giant but, because his assumptions assume a reversion to midcycle conditions from the current elevated levels, Fletcher’s earnings progress is unlikely to be very exciting for the next three years.
‘‘We don’t try and pick the cycle. We factor in a reversion to midcycle,’’ Mr Dekker explains.
He says a key upside risk to his forecasts are that New Zealand has a longer and stronger building cycle and that Fletcher manages to expand its margins in Australia, which could also be a more benign competitive environment than he is assuming.
He is forecasting net profit for the year ending June will come in at $384 million, a considerable lift from his previous forecast of $312 million.
That’s a big turnaround from the $190 million net loss Fletcher reported for the June 2018 year and the scant $94 million net profit it reported for the 2017 financial year.
Both the previous two results were hit by the near $1 billion losses from the highrise construction arm, Building + Interiors.
For the year ending June 2020, Mr Dekker has forecast an almost flat net result of $387 million, falling to $362 million the following year.
A key part of Fletcher’s strategy is to lift the margins of its Australian businesses to match those achieved in New Zealand.
‘‘With a number of Fletcher’s Australian businesses having performed relatively poorly with relatively modest earnings, it is difficult to understand just how much they will be impacted by the downturn in activity in Australia,’’ Mr Dekker says.
‘‘The more interesting area of interest in the next six to 12 months will be whether the downturn impacts the investment decisions Fletcher has indicated it will make in the Australian business, as it looks to turn it around and improve earnings,’’ he says.
‘‘It is unlikely that any major commitments have been made at this point and the cycle in Australia could influence plans.’’
As for the local construction cycle, he expects residential building consents to revert to a longrun average of 25,000 a year by 2022, down from about 33,000 currently.
There is a risk consents could fall further and Mr Dekker notes that in the last cycle, consents bottomed out at 15,000 a year.
Fletcher’s residential building division accounted for about 12% of earnings before interest and tax in the year ended June 2018 and he forecasts it will account for 14% this year, up from 6% in 2012. — BusinessDesk