Fletcher Building Limited
FBU Details
Fletcher Building Limited (ASX: FBU) is engaged in the manufacturing and distribution of building materials and construction activities for residential and commercial. It operates in segments, namely, Building Products, International, Distribution, Residential and Land Development, and Construction.
Material Business Update:
- FBU is focused on digital expansion and network expansion through the acquisition of TUMU Stores.
- It is currently scaling up its Laminex line of products and Haven Kitchen.
- FBU is expecting the residential market in Australia to show robust performance in the medium term and fovorable outlook supported by government infrastructure spending.
- It is anticipating the Concrete & Distribution business on track to short-term margin targets earlier than expected.
- Its 2HFY22 EBIT margin is expected to reach ~9.5%, and FY23 is targeted at 10.0%.
- FBU completed 75% of the buyback program, and NZ$300 million is underway.
- On May 2, 2022, FBU appointed Phillip Boylen as the new Chief Executive of Fletcher Construction Company Limited.
Key Financials (Analysis by Kalkine Group)
Key Risks: Increasing property prices across Australia may affect affordability and impact volume growth. Higher interest rates may dissuade household spending on property and home improvements.
Outlook: Due to robust market conditions, FBU is expecting full-year EBIT to be NZ$750 million and the EBIT margin for 2HFY22 to reach 9.5% (vs 7.2% posted in 2HFY21). With no lockdowns, FBU is anticipating the FY23 EBIT margin to hit 10%.
Valuation Methodology: Price-to-Earnings Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of FBU has been corrected by ~10.62% in the past three months. The stock reached a new 52-week low price of $5.470 as of May 4, 2022. The stock has been valued using a Price-to-Earnings multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some premium to its peers, considering the high current ratio of 1.63x in H1FY22 over the industry median of 1.54x. For the purpose of valuation, peers such as Reliance Worldwide Corporation Ltd. (ASX: RWC), NRW Holdings Ltd. (ASX: NWH), and Adbri Ltd. (ASX: ABC) have been considered. Considering the decent outlook, healthy project pipeline in the construction segment, promising growth in the Concrete & Distribution segments, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Buy’ rating on the stock at the closing market price of $5.490, as of May 04, 2022, down ~1.081%. 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.
FBU Daily Technical Chart, Data Source: REFINITIV
BSA Limited
BSA Details
BSA Limited provides contracting services such as installation of subscription television and smart meters, installation of building infrastructure such as fire detection, mechanical services, and so on. It operates in segments, namely, BSA Communications & Utility Infrastructure (CUI), and BSA Advanced Property Solutions (APS).
Notable Updates:
- Wentworth Williamson Management Pty Ltd ceased to be a substantial shareholder with effect from April 7, 2022.
- On April 7, 2022, BSA completed the institutional placement and the institutional component of its 1 for 3.19 pro rate entitlement offer. It had raised ~$12.6 million at an issue price of A$0.10, constituting 125.8 fully paid ordinary shares alongside 125.8 million options.
- It commenced a retail entitlement offer on April 13, 2022 and is expected to close on May 4, 2022.
- From both the retail and institutional components, BSA plans to raise $15.5 million. The proceeds will be utilized to fund working capital requirements.
- On March 4, 2022, BSA announced the retirement of Mr Micheal Givoni as Chair and the Director effective from March 3, 2022. The Board has appointed Mr Nick Yates as Interim Chair of BSA Limited.
- In H1FY22, BSA posted a 17.2% uptick in topline growth at its CUI segment, while the APS segment decelerated by 12.8% YoY, leading to overall revenue growth of 4.4% to $217.6 million.
- BSA posted an EBITDA loss of $2.0 million before significant items in H1FY22, owing to a delay in the commencement of new contracts.
Key Financials Trend (Analysis by Kalkine Group)
Key Risks: A slowdown in infrastructure spending by the government may drag its topline growth. Increasing spread of the new virus variant may invoke lockdown and led to mobility restrictions which invariably affect the project completion. Off late, BSA paid off $20 million towards the settlement of lawsuit proceedings filed in July 2020.
Outlook: BSA is expecting H2FY22 revenues to be in the ambit of $240-$260 million and EBITDA in the range of $2-$4 million.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of BSA has been corrected by ~52.10% in the past three months. The stock just recovered from its 52-week low price of $0.077. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the elevated debt levels, negative ROE, and recent legal settlements. For the purpose of valuation, peers such as Millennium Services Group Ltd. (ASX: MIL), NRW Holdings Ltd. (ASX: NWH), Lycopodium Ltd. (ASX: LYL), and others have been considered. Considering the recent fundraising, uptick in topline in H1FY22, optimistic view, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.096, as of May 04, 2022, up ~4.35%. 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.
BSA Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.
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.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.