Analysts welcome Fletcher’s sale plan
The investment community has reacted positively at Fletcher Building’s announcement of talks with Broadview to sell laminated and composite business Formica for $1.2 billion, with one specialist headlining a note: “Fletcher does something right for a change”.
Although the sale price for the business was just under forecasts with a $1.3b top end, analysts saw the move as the first good news to come out of the business in some time.
Matt Henry of Forsyth Barr, Craig Lindberg and Grant Swanepoel of Craigs and Shane Solly of Harbour Asset Management welcomed the plan. “It’s a pretty good outcome, particularly given the volatilities we’ve seen in equity markets over recent months. There was some nervousness about how that could influence the outcome,” Henry said, citing volatility in the US and the UK, Formica’s key market.
Craig Lindberg of Craigs described the deal as “a positive outcome”. “We are of the view that the Australian investors were expecting about $1b while New Zealand investors were anticipating $1b to 1.2b with a mixed view as to whether a deal was definitely going to be concluded.”
Craigs predicted a share buyback, “to counter its likely removal from the MSCI mid-cap index in March 2019. They might not have the confidence to initiate a material one ahead of the funds being received”.
Swanepoel described the Formica announcement as a turnaround.
“Finally, we get some good news out of this company. It’s been a while. It’s a great outcome,” he said, particularly because the buyer was a trade business. “That removes any regulatory approvals and means both parties are aligned. It’s just the certainty of it. This is a deal that’s done.”
The dividend reinstatement had been widely expected “but it’s good the board had the confidence to come out now. These guys are going to have a fairly light balance sheet”, he said, raising questions about an acquisition trail possibility.
Solly said: “Good to see the asset sale completed and this leaves Fletchers well capitalised to continue to restructure. It’s good to see Fletcher board and management deliver on the sale process. It’s an important milestone for the new team.”
Fletcher shares put on 33c at one point yesterday, rising to $5.16 after Taylor's announcement, before drifting back to close at $4.93, up 2 per cent for the day.
Taylor said the company had entered into an agreement to sell the business to Broadview Holding for US$840m ($1.226b) and would again pay shareholders a dividend.
On the $1.2b sale proceeds, Taylor said it was important to first complete the sale, and the company would continue to take a prudent approach to management of its balance sheet.
Fletcher confirmed its intention to reinstate dividends in the 2019 financial year, starting with an interim dividend to be declared on finalisation of the half-year results on February 20.