Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Fletcher Building Limited (ASX: FBU) is majorly involved in the manufacturing and distribution of building materials and residential & commercial construction. The company's segment includes Building Products, Distribution, Concrete, Residential and Development, Construction and Australia.

1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~20.52% of the total shareholding. The Allan Gray Australia Pty Ltd and Accident Compensation Corporation are holding a maximum stake in the company at ~7.34% and ~3.46%, respectively.

1.4 Key Metrics: The company reported an improvement in gross margin during FY22 to 29.5% compared to 28.8% in FY21. Further, FBU witnessed growth in return on equity in FY22 which increased from 8.4% in FY21 to 11.6% in FY22. Below is captured the trend of the net margin and asset turnover ratio:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of FY22: During FY22, EBIT increased to NZD 702mn compared to NZD 540mn in FY21, while the cash and cash equivalents reduced to NZD 351mn relative to NZD 666mn at the end of FY21. However, the cash flow in FY22 was partially offset by some housing investment and inventory rebuild.   

2.3 Outlook: The company’s business strategy positioned it to drive shareholders' value, both in the short and longer term. The company refreshed its sustainable strategy, which includes additional commitments to achieve its net zero carbon emission target.

2.4 Dividend History: The company declared the final dividend of NZD 22.0 cents per share, bringing the full-year dividends to NZD 40.0 per share, and it also completed an on-market share buyback programme of a total of NZD 274mn.

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

4.2 Fundamental Valuation

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

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.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is December 15, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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