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.’’

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