KEY POINTS:
Fletcher Building is set to get an earnings boost from new Government housing rules later this year, an analyst said yesterday, as the company revealed it is heading for its first half-billion dollar net profit.
The building materials company yesterday got a further $24 million boost from the settlement of an insurance payout relating to a fire in the company's factory in Taupo last year.
Analysts now say that instead of the $388 million net earnings which was the consensus forecast in February, the company could make $482 million net profit in the June year.
The news came a day after Fletcher Building revealed a $70 million tax windfall and sent the company's shares to a fresh all-time high of $12.01 yesterday before they closed at $11.89, up 11c on Wednesday's close.
Andrew Mortimer of First NZ Capital said the Government announcement last week on strengthening the building code could increase Fletcher's annual revenue by $45 million.
Prime Minister Helen Clark said last week that from November, new houses in the South Island and the North Island's Central Plateau would need more insulation and double-glazing. Improvements to house insulation in most of the North Island would take effect in July next year and in Auckland and Northland from October next year, she said.
Mortimer has now put a 12-month target price on Fletcher shares of $12.40.
Mortimer said Fletcher's insulation and aluminium door and window business would benefit from tougher building code rules for housing energy efficiency. The company is a market leader in insulation and joinery.
This week's events have prompted analysts to upgrade their recommendations, revise the share price target and increase profit forecasts.
Rob Mercer of Forsyth Barr said he remained convinced Fletcher's earnings would increase "sharply" in the next two years, based on a strong rebound in residential and non-residential building activity. He upgraded his recommendation from accumulate to buy.
Fletcher Building's full-year profit projection has been pushed up by 24 per cent this week - from the $70 million boost from the settlement of a tax dispute with the Inland Revenue over foreign currency and the $24 million insurance gain.
"This is a big chunk of cash we didn't know about," said one analyst. "It might add another 20c per share."
Yesterday ABN Amro predicted a $485 million full-year profit. The final result will be released in August.
But analysts warned that the big cash gains from settling the tax and insurance issues were one-off events and did not affect Fletcher's long-term prospects.
Jonathan Ling, Fletcher's chief executive, said the insurance issues on the company's medium-density fibreboard plant at Taupo were resolved. The plant was destroyed by fire last year.
A second claim on the failure of a transformer at Fletcher's Pacific Steel was being settled, Ling said. Fletcher received a $91 million insurance payout which it said would be $81 million after deductions. The resolution of the transformer claim was advanced enough to make a reasonable estimate of the final outcome.
But the company has decided against rebuilding the Taupo factory. The plant was export-focused and Fletcher had found cheaper locations, it said.
About 70 staff have already been made redundant, although the Taupo particle board plant is still operating and employing 35 staff.
Big week
* Wednesday: $70 million tax windfall.
* Thursday: $24 million tax gain. Shares hit all-time high of $12.01.
