Brokerage upgrades Fletcher Building to 'buy'

Citigroup has upgraded its rating on Fletcher Building to "buy" from "hold", saying a 19 per cent slide in its share price since October was not warranted.

Citigroup said the share price was building in too much risk for the construction and building products company, which has benefited from building booms in Australia and New Zealand but warned last month it expected earnings to slow sharply in 2006.

Slowing residential markets and high interest rates are negative for the company, but Fletcher Building's commercial construction backlog is a record high $840 million and likely to grow.

"We expect the impact of a forecast 14 per cent fall in New Zealand residential activity over FY06 (full year 2006) to be more than offset by growth in non-residential and infrastructural activity and an earnings boost from the recently acquired Amatek operations," Citigroup said.

Citibank's forecast of Fletcher Building's profit, before abnormals, in the year to June 30, 2006 was fractionally raised to $359 million, but it lowered the 2007 result by 3.4 per cent to $351 million.

Shares in Fletcher Building have recovered 4 per cent since hitting a five-month low on Tuesday, last trading up 0.4 per cent at $7.11. Citibank revised down its target price by 10 cents to $8.40.

- REUTERS