'Great shame' if Fletcher sold and delisted from NZX, says investment chief

Businesses will be looking at Fletcher Building, Robertson says. Photo/Natalie Slade

New Zealand investors would be much the poorer if Fletcher Building left the NZX, an investment expert said, and although the firm had issues, he does not want to see it follow a string of other businesses leaving our sharemarket.

Slade Robertson, managing director of Auckand-based Devon Funds Management, said despite Fletcher's problems, the fact it was listed on the NZX was good for our market and any change to that would be unwelcome.

"It would be a great shame to lose it from the listed market. New Zealand has a history of selling assets too cheaply when they face short-term earnings pressure," he said.

On the delisting speculation, a Fletcher spokesperson said no comment would be made.

Robertson's comments follow a Sydney Morning Herald report saying ASX listed giant Wesfarmers had bought 3 to 4 per cent of Fletcher and that it was a potential acquisition target.

A Fletcher spokesperson said: "We are not aware of a shareholding in the name of Wesfarmers." A Wesfarmers spokesperson said: "We're not commenting. It is our standard practice either way, neither confirm or deny."

Fletcher Building's share price had jumped more than 10 per cent on the news and was trading at $6.45 this afternoon.

The NZX has had a bad week, with with the delisting of Trilogy International, Happy Valley Milk's decision to list on the ASX and Icebreaker's confirmed purchase price by the US apparel giant VF Corp when a NZX listing was a potential alternative.

Robertson, with more than 20 years' experience in the New Zealand and Australian investment industry, said he fully expected businesses were looking at Fletcher with a view to buying some or all of its assets.

"It's not a surprise that there is a suggestion of interest in Fletchers from Wesfarmers, given the high quality of the underlying assets and the attractive valuation. We would be surprised if a range of other corporate acquirers and investors were not looking at this company at its current price levels," he said.

"Fletcher Building is one of New Zealand's most ubiquitous companies. It is also one of our oldest companies with some of the businesses within its stable originating over 100 years ago," he said.

Its shares were now trading back at levels not seen since the global financial crisis and it was looking extremely cheap compared to the market and its Australasian peers in the building materials sector, Robertson said.

"It is now priced on a 12-month forward PE of 10.0x. The NZX50 Index is trading on 19x and listed Australian building material stocks such as Adelaide Brighton and James Hardie are on 19.0x and 22.7x respectively. This discount is unprecedented," he said.

The primary catalyst for the weak Fletcher share price was due to the ongoing challenges within its construction division but these appeared to have been excessively reflected in the company's value, he said.

Fletcher's NZX market capitalisation was $7.05b before write-downs began to be announced, he said, but it had fallen by $3b since then "on less than $800m of one-off losses."

New Fletcher chief executive Ross Taylor was well-regarded by the market and had already improved the culture and morale of the business, he said.

"Ross Taylor and the Fletchers board are now operating under a clear mandate to simplify the structure. This will result in asset sales and a much higher level of discipline driving operating outcomes. Fletcher will be a much simpler business," Robertson said.