Christchurch earthquake: Fletcher tipped to gain from repairs

Photo / Supplied

Financial analysts are upgrading Fletcher Building's outlook after last week's earthquake.

Matt Henry of Goldman Sachs changed his rating from hold to buy and forecast net profit after tax of $333 million this year, $393 million next year and $513 million in the year to June 2013.

Rob Mercer of Forsyth Barr in Wellington has also upgraded Fletcher and Henry said it would be included in the ASX200 index after March 18.

Fletcher chief executive Jonathan Ling yesterday released an investor presentation to the NZX where he also cited growth from more work and the high number of dominant market positions the $5 billion company controls in the building materials, construction, supply, manufacturing and distribution sectors.

Henry said Fletcher would benefit "materially as volume and operating leverage compounds ... to a significant boost in earnings."

The reconstruction programme was unprecedented, house repairs would amount to at least $5.8 billion, and $1.9 billion of non-residential remediation would be undertaken from 2012 to 2016, Henry said.

Infrastructure repairs of $1.9 billion would be needed and this would take priority in the very near term. The earthquake would dampen construction activity in the short term and the ramp-up would not start until next year, he said. Ling is speaking in Australia, Britain and the United States, on a trip with investor relations general manager Philip King.

The presentation emphasised Fletcher's Australasian dominance in many products crucial to the Christchurch rebuild. The company is New Zealand's sole manufacturer and leading supplier of gypsum plasterboard and No 1 in Australasia in the bulk glasswool insulation market where it has a 35 per cent share with Fletcher Insulation, Tasman Insulation NZ, Forman Group and Home&Dry, the presentation said.

AHI Roofing and Decra Roofing Systems make Fletcher a global supplier of metal roof tiles, some manufactured in Europe.

Retail chain PlaceMakers controls 34 per cent of the market in core building materials sectors and 85 per cent of its business has a trade focus. Fletcher is No 1 in the supply of long steel and its Stramit comprises 24 per cent of the Australian market in rollforming and coated steel products. High-pressure laminate and decorative surfaces business Laminex has a strong Australasian position. It is No 1 in the decorated board market and in medium-density fibreboard and No 2 in particleboard.

Firth, Humes Pipeline Systems, Golden Bay Cement and Winstone Aggregates control 15 per cent of New Zealand's aggregates markets, 55 per cent of the cement market here, 34 per cent of our readymix concrete market and half New Zealand's pre-cast and concrete pipe market - all these products will be crucial to Christchurch's rebuild and infrastructure repair.

Fletcher Residential is the country's biggest house builder. Fletcher Construction has commercial and engineering capabilities, having built up a large workforce with international-standard expertise in engineering, quantity surveying, project management, roading and construction.

Some financial experts quietly criticise Fletcher for holding such dominant positions, saying if it had to make applications to buy these businesses now, the Commerce Commission would flatly refuse it based on anti-competitive grounds.

Ling's new presentation out yesterday showed Crane Group integrated into the Fletcher fold, becoming a sixth division alongside laminates and panels, building products, infrastructure, distribution and steel.

"Canterbury earthquake repair work will be significant," Ling's presentation said. "Commercial construction activity appears to have bottomed out. Infrastructure spending to dip in 2011 before growing in 2012."

Shares fell 20c to $8.54, but that followed a 16c-a-share dividend payout.