Fletcher Building Limited
FBU Details
Fletcher Building Limited (NZX: FBU) is a diversified business that ranges from manufacturing building products, distribution of building products, residential and development, and construction, among others. It is also a fully integrated cement manufacturer through its Golden Bay Cement business.
Result Performance for the First Half Ended 31 December 2021 – H1FY22
- The revenue stood at $4,064 million, up 2% YoY, reflecting a solid second quarter rebound across the Group as restrictions eased.
- The net earnings improved significantly to $171 million, increasing by 41% YoY.
- The board approved an interim dividend of 18.0 cents per share, an increase of 50% over the 12.0 cents per share interim dividend last year.
- The cash flows from operating activities amounted to $157 million, compared to $424 million in the prior period.
Source: Company Reports, Analysis by Kalkine Group
Recent Update
- On 25 March 2022, the company announced the appointment of Joe Locandro to the role of Chief Information Officer (CIO), replacing Dan Beecham.
Outlook
The balance sheet stays robust with $1.3 billion of liquidity and leverage of 0.4x. Further, the investment pipeline is well placed to drive growth beyond FY23. The company expects the established momentum in operational performance to sustain. It forecasts the EBIT margins to stay at ~9.5% in H2FY22, up 230 basis points from the pcp. The company expects to report FY22 full-year EBIT (before significant items) of circa $750 million. However, due to the impact of the Covid-19 pandemic, the group predicts a potential productivity impact on its EBIT between $25-$50 million. Besides, FBU remains confident in its outlook for the FY23 year, and it expects to improve profitability further, averaging 10% EBIT margins for FY23.
Key Risks
The group’s inability to detect early and respond to cyclical downturns may impact financial results. It operates in various business sectors and countries and thus is subject to a wide range of regulatory requirements and jurisdictions. Further, disruption caused by ineffective coordination and control of the organisational supply chain would lead to operational disruption, penalties, and reputational damage.
Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)
Technical Overview:
Daily Price Chart
Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)
Stock Recommendation
The stock is trading lower than the average of the 52-week high price of $7.99 and the 52-week low price of $6.13.
The stock has been valued using P/E multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low-double-digit (in % terms). A slight discount has been applied to P/E Multiple (NTM) (Peer Average), considering the risks associated with business and the expected productivity impact due to Covid-19.
However, considering its strong financial performance in H1FY22, robust balance sheet and decent outlook, a “Buy” recommendation has been assigned on the stock at the closing market price of $6.24 per share, down by 1.11% as of 22nd April 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Fletcher Building Limited (FBU) is a part of Kalkine’s Global Real Estate Product
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined:-
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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