Fletcher Building will suffer due to the pandemic. Photo / Natalie Slade
Fletcher Building will suffer due to the pandemic. Photo / Natalie Slade
New Zealand's biggest listed construction business has had its earnings forecast downgraded due to the pandemic.
Grant Swanepoel, of Jarden Securities, reduced the company's earnings outlook in the year to June 30, 2022, by $18 million because operations could not function when the lockdowns started in August.
"Due to lockdownimpact, we reduce our EBIT from $719m to $701m," he said in his latest analysis. "Fletcher has been negatively impacted by recent lockdowns.
"The last time construction was halted, it was for seven weeks and impacted FY20 Ebit by $200m. This was after receiving $68m in wage subsidy," he said.
"Fletcher will not take a subsidy for this latest lockdown but includes $29m of missing land sales so that's a circa $240m net impact. This latest lockdown can be viewed as circa two weeks of no construction and a further three weeks at 55 per cent activity, so it's equivalent to 3.5 weeks of no activity, circa 50 per cent of the FY20 lockdown duration," he said.
That was therefore an implied impact on the 2022 year of around $120m at first glance, Swanepoel said.
The company was more was prepared for restarting this time. Most divisions were back at full capacity as soon as they could return, he said.
Fletcher also had time to catch up on lost sales. Last year's lockdown ended in mid-May, so there was not enough of the financial year left to benefit from the post-lockdown frenetic catch-up, he noted.
In the housing division, many sales were too late to be captured by year-end last year but the FY22 year has a long way to run yet, he noted.
Fletcher chief executive Ross Taylor. Photo / Jason Oxenham
Marcus Curley, of UBS, lifted his rating from neutral to buy.
"The share price was 29 per cent above its pre-Covid levels following earnings upgrades as New Zealand construction activity rebounded and supercharged by Fletcher's cost-saving initiatives," Curley said.
He expects further earnings momentum from higher construction activity and stronger building products pricing, despite the current lockdowns.
Shares look cheap compared to their Australian peers and their historical price earnings. An attractive dividend yield and share buy-back programme should provide additional share price support, Curley said.
UBS is expecting construction spending to lift five per cent in 2022 and remain elevated until 2024. It will be underpinned by pent-up demand in the residential sector and higher infrastructure spending.
He put a 12-month target of $8 on the shares and expects EBIT to rise in the 2022 year, driven by that strong recovery in the building sector as well as record building materials price inflation and Fletcher doing better from the construction market.
A Fletcher spokesman said today the company had no statement to make about the analysts' forecasts.
It is preparing for its annual shareholders' meeting on Tuesday, October 19, to be held in a virtual or online forum. An update on trading conditions and the effects of the lockdown could be given then.
On the share buyback front, the business has bought 3.65m shares so far for around $28m.
In August, Fletcher exceeded its own massive profit guidance, posting its full-year result just as all non-essential construction sites throughout New Zealand went into lockdown.
The business declared earnings before interest, tax and significant items of $669m for the year to June 30, 2021, exceeding the top end of its own guidance range of $665m.
Last year's $7.3b revenue rose to $8.1b and net profit after tax turned around from last year's $196m loss to a stellar $305m profit.
But chief executive Ross Taylor cited New Zealand's new lockdown and possible effects on his sector.
"There does remain some uncertainty around the impact of Covid-19 on activity in our markets. We will continue to monitor and manage this closely," Taylor said at the time.
Shareholders got a final dividend of 18 cents per share, bringing the annual dividend to 30 cps.
Today, the company has a market capitalisation of $5.9b and its shares are trading on the NZX at around $7.29, more than double last March's $3.30. The share price has risen 62 per cent annually, piling on $2.10.
