Fletcher’s good news lifts shares

The market which pushed down Fletcher Building's share price by a quarter in the past two months got a wakeup call yesterday after the building products group lifted its full-year earnings forecast for the second time this year.

Fletcher chief executive Ralph Waters reckons the strength of the non-residential and infrastructure markets will boost operating earnings for the year to June to between $560 million and $580 million.

This compares with the $525 million to $545 million released in February, which was itself a 10 per cent upgrade on earlier profit expectations.

Fletcher Building shares surged, closing up 28c at $6.04.

"The stock is trading way below its true value," Forsyth Barr research head Rob Mercer said.

He said the market had under-priced the company and the potential was wide open for investors to buy the stock at a huge discount.

After trading at $7.70 on March 7, Fletcher's shares plummeted to as low as $5.75 this week, amid fears of a potential earnings decline.

But Mercer reckons the true valuation is actually $7.81.

He said major Australian investors, hit hard by their own residential downturn, had taken a more pessimistic view than was warranted.

Waters said other research houses had pegged the shares at similar levels to Mercer and he had released the forecast to redress the share-price drop.

"Everyone is so jittery," he said, aiming the news at retail investors who, he said, would be confused by the falling share price.

"Every year we have a record result and yet I'm always on the back foot saying it won't all fall," a frustrated Waters said, before boarding a plane for Los Angeles.

"Our operating earnings were $94 million in 2001, $202 million in 2002, $330 million in 2003, $460 million in 2004 and now they will be $580 million."

Next year would be another strong 12 months, he forecast.

Waters said the recently acquired Australian building products group Amatek would contribute at least $22 million in earnings.

Amatek is helping shield the company's earnings as two-thirds of its sales are for commercial and industrial construction.

Fletcher directors held their board meeting in Whangarei yesterday, as part of a strategy to gather in centres where the company has a major presence.

They visited their Golden Bay cement plant, where the company has approved a $70 million upgrade.

"That's a pretty big buzz for the local community," Waters said of the impact of company spending on Whangarei's economy.

 

www.fletcherbuilding.co.nz

www.forsythbarr.co.nz