Fletcher hot on trail of Rudd's cosy homes fund

Fletcher Building could get a big boost from Australian PM Kevin Rudd's package to give insulation payments to home owners and landlords.

Matt Henry and Buffy Gill of Goldman Sachs JBWere in Auckland examined the benefits of Rudd's A$3.3 billion ($4.1 billion) package and the spinoff it could have for the Penrose-headquartered business.

Australia's insulation market was dominated by Fletcher with 60 per cent of production capacity and rival CSR with 40 per cent, they said.

The stimulus package starts on July 1, running for 30 months and New Zealand could export insulation materials to Australia to keep pace with demand, the analysts said.

Fletcher's Tasman Insulation New Zealand makes Pink Batts, Australia's biggest provider of glass wool ceiling insulation and the firm headed by chief executive Jonathan Ling stands to gain from Rudd's attempt to cushion the Australian economy.

Fletcher manufactures glasswool in Auckland and Christchurch using technology licensed from Owens Corning in the United States. Tasman also manufactures and distributes building wraps, foils, papers and concrete underlays from its Duroid Manufacturing plant.

Fletcher Insulation is Australia's largest supplier of products manufacturing glasswool, polyester and reflective foil materials.

Ling touched on insulation's potential in his New York presentation on Friday to an investment forum.

The strategy was to increase insulation volumes from Government-sponsored energy efficiency schemes and tighter building code requirements, Ling said. Insulation comes under Fletcher's building products division.

"We expect to significantly increase production in our Pink Batts plants to meet the increase in demand," said Philip King, Fletcher's investor relations manager.

Rudd's scheme provides insulation worth up to A$1600 for owner-occupiers and A$1000 for rental properties. It replaces Australia's existing scheme: a A$300 handout to owner-occupiers and A$500 to landlords.

The Australian Government has estimated at least 2.7 million houses would have ceiling insulation installed under the plan, part of its package to stimulate the economy by creating green jobs.

The insulation programme is also an attempt to slash electricity bills in 2.7 million households by about A$200 a year, while also tackling greenhouse gas emissions.

Goldman's analysts said the amount of money available from the package was significant. Fletcher has sufficient production capacity, which included its ability to export insulation materials from New Zealand if the market runs hot across the Tasman.

The key constraint would be the huge numbers of insulation installers available, the analysts said. Fletcher estimated the labour force would need to rise about 300 per cent to cope with demand.

Alternatives to Fletcher-made insulation were also available, including foil, the analysts said.

WRAPPED UP

* Fletcher Building has capacity to produce 60 per cent of Australian insulation needs.
* The company is set to benefit from Australia's home insulation package.