Warning to investors over fund manager’s Fletcher buy

An investment chief has questioned the importance of a giant funds management firm buying more than 5 per cent of ASX and NZX-listed Fletcher Building, warning that people should not get too excited.

“My concern is if someone sees that, thinks Fletcher is in play and goes out and buys shares,” said the Aucklander, who spoke to the Herald under the condition of anonymity.

After speculation late last week that ASX-listed Wesfarmers had bought 3 to 4 per cent of Fletcher, the price rocketed from Thursday’s $5.84 to $6.35 on Friday — providing a strong indication of the current hype.

The investment expert was responding to Sydney’s Ellerston Capital revealing to the ASX on Friday that it had become a substantial Fletcher shareholder. Ellerston, with more than A$5 billion ($5.27b) under management, now controls 5.13 per cent of the Penrose builder, materials manufacturer, supplier and distributor on behalf of an unnamed party.

Clients of the Sydney business “include Government, industry and corporate superannuation funds, international funds as well as individual investors via leading investment administration platforms”, Ellerston said.

“Ellerston is looking for value, if you look at Fletcher versus its peers,” the Auckland investment boss said.

Fletcher was trading at a price-earnings multiple well below Australasian counterparts, he said, and that meant it was good value.

“Buying more than 5 per cent shows you’re active. If you own 4.6 per cent of the company and the stories about Wesfarmers come out, you go over 5 per cent. You have nothing to lose. You’ve pointed out you own a big stake.”

He also questioned whether Wesfarmers had bought into Fletcher, following a report published in the Sydney Morning Herald last week.

It did not make sense to him that Wesfarmers would be interested in Fletcher, owing to anti-competitive regulations which would restrict any takeover.

Wesfarmers via Bunnings had a share of the trade market in New Zealand but Fletcher’s Placemakers had a much larger share, he said.

“There’s no way the New Zealand Commerce Commission would allow a merger of those two,” he said of any Wesfarmers takeover of Fletcher.