Fletcher Building Limited

FBU Details

FBU’s On-Market Share Buyback Programme Remains on Track: Fletcher Building Limited (ASX: FBU) manufactures and distributes building materials and residential and commercial construction across New Zealand, Australia, & the South Pacific. On April 21, 2022, FBU announced that it had purchased 543,869 ordinary shares for a consideration of NZ$6.3163 (average) for 180,105 ordinary shares acquired on NZX exchange and A$5.7558 (average) in respect of 363,764 ordinary shares acquired on ASX exchange.

Key Takeaways from 1HFY22 Results:

• FBU reported strong 1HFY22 performance, owing to share gains in target segments, improved operational performance and cost disciplines measures. Particularly, revenues from Building, and Construction segment went up by 9% and 11%, respectively, on pcp basis.
• The company remains on track to invest higher in its New Zealand materials and distribution divisions, drive product and market growth, and accelerate e-commerce as well as digital activities. Backed by its decent liquidity position, FBU declared an interim dividend of 18 cents per share, with a payment date of 7 April 2022.

Key Financial Highlights; Analysis by Kalkine Group

Key Risks: The company is exposed to increased governmental as well as regulatory scrutiny. Additionally, any disturbance triggered by ineffective coordination and control of the organizational supply chain may lead to operational disruption and reputational damage. 

Outlook: For 2HFY22, group EBIT margins are expected to be ~9.5%, an expansion of 230 basis points on a year over year basis. For full-year FY22, EBIT is expected to be ~$750 million. Further, FBU is expected to remain on track to deliver EBIT margin of ~10% in FY2023.

Valuation Methodology: P/E 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 the company went down by ~16.97% in the past nine months. The stock has a 52-week high and low levels of $7.64 and $5.64, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its peers, considering the foreign currency fluctuation risks, changes in government regulations, etc. For the purpose of valuation, peers such as Adbri Ltd (ASX: ABC), CIMIC Group Ltd (ASX: CIM), NRW Holdings Ltd (ASX: NWH) have been considered. Considering decent 1HFY22 financials, enhancing shareholder’s value, decent long-term outlook, current trading levels, and indicative upside in valuation, we recommend a ‘Buy’ rating on the stock at the closing market price of A$5.79, up by ~0.695% as 21 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.

FBU Daily Technical Chart, Data Source: REFINITIV 

Monadelphous Group Limited

MND Details

Contract Update: Monadelphous Group Limited (ASX: MND) is engaged in providing engineering services within Australia. As announced on 14 April 2022, the company has secured new contracts and contract extensions in the resources sector of ~$230 million. This includes a contract with Rio Tinto for the provision of closure works in the Pilbara region of Western Australia.

1HFY22 Financial Highlight:

• During 1HFY22, the company witnessed increased demand for its maintenance services, thus achieving a record half-year revenue. The company’s Maintenance and Industrial Services division skyrocketed 21.3% on pcp in 1HFY22 and came in at $596.1 million.
• During 1HFY22, the company won ~$860 million of new contracts and contract extensions across resources, energy, infrastructure, and international markets.
• MND has declared an interim dividend of 24 cents per share fully franked. Notably, the company ended the period with a cash balance of $175.3 million, indicating a robust cash flow conversion rate for 1HFY22 of 104%.

Financial Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company’s business is exposed to risks arising from the change in pricing of contracts, which could impact its financial and operational health.

Outlook: MND opines that buoyant resources, energy, and infrastructure sectors are expected to provide a robust pipeline of opportunities, going forward. The company expects revenue for 2HFY22 to be lower because of the timing of new major projects.  As a result, the company’s FY22 is expected to be ~5% to 10% lower than the prior year.

Valuation Methodology: P/E 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 MND is trading above its 52-weeks’ low-high average of $8.68 - $12.93, respectively. The stock went up by ~2.14% in the past nine months. The stock has been valued using the P/E 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 expected growth in construction activity and winning of significant contracts. For the purpose of valuation, peers such as Reliance Worldwide Corporation Ltd (ASX: RWC), MAAS Group Holdings Ltd (ASX: MGH), and Johns Lyng Group Ltd (ASX: JLG) have been considered. Considering the new contracts and extensions, growing topline and bottom line, decent liquidity position, expected upside in valuation, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $11.10, up by ~1.741% as on 21 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.

MND Daily Technical Chart, Data Source: REFINITIV 

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.

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.