Analysts pick rebound for Fletcher

Jonathan Ling says Fletcher Building is well placed for an economic recovery.Photo / Greg Bowker

Analysts are predicting Fletcher Building will head back to profitability after this year's loss caused by a disastrous series of abnormal writedowns.

Fletcher yesterday announced a $360 million after-tax one-off writedown which turned its $558 million operating profit into a $46 million net loss for the year to June 30, 2009.

That is only the second time Fletcher has made a loss since listing. After regularly backing the consensus of analysts' forecasts in previous years, chief executive Jonathan Ling refused to give any earnings guidance for next year.

"Given the degree of uncertainty in many of our markets and as it is early in the financial year, it is not considered appropriate to provide any quantitative earnings guidance on 2010 results at this stage," Ling said.

But analysts are more chipper about Fletcher's outlook, expecting big gains from infrastructure work, a house-building lift and the sound fundamentals of its business.

Fletcher Building shares surged 56c, or 8 per cent, to close at $7.58.

Kar Yue Yeo of First NZ Capital picked next year's net profit to be $304 million, rising in 2011 to $427 million.

Rob Mercer of Forsyth Barr forecast $290 million, rising in 2011 to $400.2 million.

And Matt Henry of Goldman Sachs JBWere is tipping $235 million for next year and $367 million in 2011.

Mercer said Fletcher was well-positioned to gain from the economic recovery. The worst was over, he said.

"Over the past year, Fletcher has been proactive in cutting back costs and improving plant efficiencies and therefore its margins and profitability will improve as a turnaround in the residential building activity occurs," he said.

Henry has noted the Government pipeline of infrastructure work and expects New Zealand and Australian residential construction to pick up in the next 24 months.

Yeo has cited good migration trends as a benefit and said more importance should be put on operational earnings than net profit.

Ling said yesterday he never gave earnings guidance at the August annual results announcement, instead using Fletcher's November annual meeting.

Bill Roest, chief financial officer, said Fletcher certainly did not expect to make a net loss in 2010.

Ling said Fletcher had cut about 2500 people from its workforce and now employed 16,500 people internationally. He emphasised strong sales of $7.1 billion and said Fletcher had gained from a weaker New Zealand dollar. Fletcher planned to sell the properties at Kumeu and Western Australian where it closed factories, he said.

Laminates and panels, which holds Formica, is Fletcher's most powerful division with sales of $2 billion (last year $2.1 billion) followed by infrastructure $1.9 billion sales (last year $1.7 billion), steel $1.3 billion (last year $1.2 billion), PlaceMakers $883 million (last year $1 billion), building products $771 million ($739 million) and property $149 million ($115 million).

"We plan for the worst and expect the best," Ling said of the company's strategy which he said meant it was well-positioned for an economic recovery.

International sales volumes were hard to pick but New Zealand and the United States appeared to be towards the bottom of the market, Europe had pain to come, Asia would remain steady and Australia was hard to predict, Ling said.