KEY POINTS:
Fletcher Building's share price took a hammering yesterday despite a first-half profit which beat most analysts' expectations.
Shares in the building products manufacturer and distributor fell 28c to $8.87, pulling down the rest of the New Zealand market in a day which saw the NZX-50 drop by 0.8 per cent.
The fall came as Fletcher Building announced a 22 per cent increase in net profit with after-tax earnings rising to $235 million in the six months ending December 31, up from the $193 million produced the year before.
Sales across the company also rose by 19 per cent to $3.55 billion.
Analysts had expected the company to announce a net profit of between $212 million and $239 million.
Broker Hamilton, Hindin Greene director Grant Williamson said the share price fall was a surprise considering the strong result.
He linked it to a number of Australian investors selling down their shares on the back of weak performance in the Australian market.
The Australian bourse fell after the Commonwealth Bank of Australia announced it had higher exposures to troubled US sub-prime lender Centro than previously revealed, pulling down the other major financials which have a large weighting in the Australian market. But Williamson said Fletcher's 28c drop was unwarranted and made the shares extremely undervalued. He predicted that once the selling period slowed the share price would bounce back above the $9 mark.
Other market commentators did not know what to make of the fall.
UBS analyst Stuart Graham said it could be related to a lack of guidance while Macquarie analyst Steven Hudson said he was still trying to work out what the share price drop implied.
Citigroup's Blair Cooper believed it could be related to the cautious approach taken by Fletcher Building in its results and said he was finding it harder to interpret the results compared to the previous year's results.
But Forsyth Barr head of research Rob Mercer said he did not believe the share price was a reflection of the result or outlook for Fletcher Building. "The market has been oversold. Fletcher Building is just one stock."
He said the results had been as expected excluding the $16 million in restructuring costs as part of Fletcher's $700 million acquisition of Formica last year.
Fletcher CEO Jonathan Ling said the result was pleasing, reflecting the group's ability to deal with variable operating conditions.
"Across our businesses, commercial and infrastructure markets are still strong, which is best exemplified in New Zealand with a construction backlog of over $1 billion."
Ling said that while there was some weakness in residential markets the company remained comfortable with its earnings prospects.
