KEY POINTS:
The market is expecting positive news from Fletcher Building's annual result tomorrow, with predictions of a big surplus that could take net after-tax profit to between $462 million and $493 million.
Fletcher is also picked to give a better-than-expected forecast for next year, because rising interest rates are having little effect on its fortunes.
Rob Mercer, analyst at Forsyth Barr Research, released a report predicting Fletcher's profits would jump 22 per cent, from last year's $379 million to $462 million this June year.
In March, Fletcher said it was happy with the consensus of analysts' forecasts of $388 million net profit after tax for the full year.
Mercer said he expected the company would issue a highly positive forecast for next year.
"We expect Fletcher Building to confirm a positive outlook, despite the rising interest rate environment. We expect that there should be evidence of a pickup in residential building activity, which is supported by the strong improvement in residential building consents, being up 14.3 per cent for the six months to June 30.
"Fletcher's core earnings have been flattish over the past couple of years on the back of subdued building activity in New Zealand and Australia. We expect the second half-year performance to confirm a rebound in New Zealand residential building activity and a more positive outlook for non-residential building activity.
"Fletcher has expanded its global earnings through the acquisition of Formica, which became effective from July 1. While the interest rate environment is attempting to impact on residential house prices, we remain confident that volume-based building activity will positively surprise."
Mercer valued Fletcher's shares at $14.45 and recommended investors to buy because the shares were trading at around $12.50.
The building products division would reflect a resilient residential market and would show strong earnings in the second half, he said. The PlaceMakers result would be more modest. The laminates and panels division would hold on to earnings, despite difficult conditions in Australia.
Pacific Steel and Pacific Wire had a difficult second half-year period. Fletcher's insulation operations performed poorly in the first half and Mercer was not sure if there had been an improvement in the second half.
First NZ Capital is expecting Fletcher's Formica acquisition to have a big benefit, but said there would be two unusual items on the accounts which would give a massive one-off gain.
"Comments regarding the Formica acquisition will be important. The successful execution of this transaction should be a key growth driver over the next 12 months," First NZ said.
It forecast net after-profit tax would hit $493 million but said that would contain $94 million from the insurance payout after the Taupo fire and a one-off tax gain. Stripping that $94 million out would reduce the figure to $399 million.
"We assume historically high levels of non-residential building activity combined with a sizeable forward order book of infrastructure projects help to offset weaker residential activity on both sides of the Tasman.
"Although New Zealand residential activity has declined, it has held up relatively well, in spite of rising interest rates and increased building costs."
Jonathan Ling, Fletcher's chief executive, will release the result in Auckland tomorrow morning.
FIVE STARS
Fletcher Building has five divisions:
* Infrastructure
* Building products
* Steel
* Distribution
* Laminates/panels
