"The decline reflects lower infrastructure, mining and commercial sector demand. In particular, Iplex losses will likely widen from the $3 million loss reported in the first half of 2015. Other businesses impacted by lower demand include Rocla Products, Rocla Quarries and Stramit. We expect further non-cash asset write-downs and capacity rationalisation commentary to feature," they said in their earnings forecast outlook.
Net profit after tax would be impacted by one-off items, including closing costs for a number of Crane Copper Tube sites in Sydney, goodwill impairment in the Forman businesses and likely goodwill impairment in Iplex Australia operations, they said. But New Zealand's performance would boost the result.
"Fletcher is currently a two-speed company. Its New Zealand operations are enjoying an upcycle in construction industry activity levels. In contrast, its Australian operations are subject to depressed demand in non-residential and infrastructure sectors. The near-term outlook for the company remains positive as cyclical earnings are being supported by management's transformation programme FBUnite," Bowley and Bascand wrote.
"Fletcher's performance is intrinsically linked to the building cycles in New Zealand and Australia. The domestic market is now above mid-cycle and is supported by the rebuild in Christchurch and higher levels of house building.
"In Australia, the residential cycle is positive, but overall volume growth is challenged by the commercial and infrastructure sectors."
Key risks to the business include the prevailing construction cycles in the regions where Fletcher operates and regulatory interference, the analysts said, citing "a number of investigations and reviews in recent years in New Zealand".
The analysts also noted how Fletcher was in the middle of a $100 million transformational programme to leverage the benefits of an integrated corporate centre at Penrose. But they also said it had a number of non-core assets and businesses which had too much capacity.
