Funds manager buys 5pc stake in Fletcher

Now would be a good time for an opportunistic buyer to snap up Fletcher Building, one analyst says.

Shares in Fletcher Building were priced at $6.29 in mid-afternoon trading yesterday on the New Zealand stock exchange, after opening at $6.50 amid news that Australian investment management giant Ellerston Capital had purchased a 5.13 per cent stake.

Sydney-based Ellerston notified the NZX that it had become a substantial shareholder, saying the shares were owned by ‘‘third-party accounts under the discretionary investment management of Ellerston Capital’’.

Ellerston Capital manages A$5 billion (NZ$5.27 billion) in funds.

Fletcher Building has been pitched by investment banks to global private equity firms and industry heavyweights as a break-up opportunity many times over recent years.

Frances Sweetman, of Milford Asset Management, said it was a well-accepted principle that conglomerates trade at a discount to the sum of their parts because of the management complexity.

‘‘Given the share price has been trading at lows only reached a few times in the last 10 years, and the new chief executive is undertaking a strategic review of the whole business, on face value this would be as good a time as any for an opportunistic buyer,’’ she said.

‘‘However, any acquirer would be extremely cognisant of the New Zealand market being at peak cycle … and value the business accordingly, which may be below shareholder expectations.

‘‘We hope to get an update on any divestment process when the findings of the strategic review are presented, supposedly in June.’’

Sweetman said Ellerston would have bought on behalf of one of its funds.

Harbour Asset Management analyst Shane Solly said it appeared Ellerston had been buying Fletcher shares for some time and just ‘‘ticked above 5 per cent’’, meaning it had to disclose that it had become a substantial shareholder.

‘‘[Ellerston Capital is] a value fund manager so they tend to invest in businesses that are selling stock cheaper and they’re pretty active, so they’re constantly buying and selling stock. If you look at the Fletchers price price, it’s at the lowest point since 2010.’’

Solly attributed the weak stock price to downward pressure stemming from big losses and earning cuts, the company’s problems renegotiating its funding, and the stock potentially being taken out of the MSCI global index.

Wesfarmers, which owns the Kmart and Bunnings brands, was rumoured to have bought 3 per cent to 4 per cent of the Kiwi building company, but it has yet to confirm or deny these reports.

Solly said companies tend to confirm if there is truth to media speculation and found it telling that Wesfarmers had not commented publicly.

On Friday, Fletcher responded that it did not know if Wesfarmers had accumulated a stake. However, the news made Fletcher shares jump 50c to $6.34. The company’s shares have had a rough ride since Fletcher announced a half-year loss of $322m in February.

Fletcher Building would not comment on the notice and Wesfarmers has been contacted for comment.

Sweetman said it was hard to tell from trading patterns whether Wesfarmers had built a stake using a nominee.

‘‘The Wesfarmers management team have their hands full with the Coles demerger and turnaround of the UK Bunnings business,’’ she said.

‘‘It is not a logical time for them to be looking at an acquisition, but they are known to be strategic and think long term – so, again, it is possible.’’