More homes expected; Fletcher shares soar

Fletcher chairman Ralph Waters. Photo by the New Zealand Herald.
Fletcher chairman Ralph Waters. Photo by the New Zealand Herald.
Shares in Fletcher Building were boosted to a year high yesterday on news earnings growth could be beyond 20% for 2013 from anticipated buoyancy in new-home construction.

Shares were up almost 4% at $7.66.

Although New Zealand construction, particularly in Christchurch and Auckland, was gathering pace and appeared positive, Fletcher chairman Ralph Waters, in a speech at the company's annual meeting yesterday, cautioned any further downturn in Australian work could prompt a downgrade of expectations.

He expected operating earnings of between $560 million and $610 million, for the year ending next June, an increase of between between 12% and 22% on the 2012 result.

Craigs Investment Partners broker Peter McIntyre said yesterday's annual meeting "demystified", for shareholders, some issues being faced by Fletcher.

Good financial guidance was offered up, work potential in Christchurch was given more clarity, and an update on expectations in Australia was given, he said.

"With [central bank] rates coming down in Australia, and in New Zealand, too, at some time, Fletcher's work book should be getting bigger."

With earthquake-related construction likely to accelerate during 2014 with the start of civic projects, and to be completed by the end of 2015, the earnings stream for Fletcher is about 9% of total earnings before interest and tax between 2013 and 2015, Mr McIntyre said.

Mr Waters said residential consents in New Zealand were up, but still lagging well behind earlier highs; commercial building was down 7%, and Government infrastructure spending "continued to underpin the construction market overall".

"Any further deterioration in the Australian market in particular, or in other key markets in which Formica [division] operates, may necessitate a revision to this guidance," Mr Waters said.

Canterbury had a "strong" gain in residential building, and Auckland had "increased activity", but the 14% increase in housing consents had to be considered in a wider context, he said.

"Housing consents for the year to June were 15,414, a 14% improvement on the prior year, but still down approximately 30% from the long-term average."

As the lead contractor in the Christchurch rebuilding, Fletcher had made "excellent progress" in the house-repair programme for the EQC. More than 26,000 permanent house repairs had been completed, plus 47,000 emergency repairs and 18,000 winter heating installations.

Key to increased building activity was a decline in seismic activity and insurers' again offering policies.

"Seismic activity in Canterbury has reduced to the extent that substantial progress can now be made. Activity levels in Christchurch have continued to gain momentum, with infrastructure repairs now under way together with increased levels of new house-building activity," Mr Waters said.

In Australia, new residential consents continued to decline and were down 12% on the previous year, and continued to weaken as the year progressed, while total consented commercial construction work fell by 9%, he said.

Infrastructure construction work was up strongly, driven by the mining and resources sector and continued government investment, but that was unlikely to continue given recent announcements on deferrals placed on new mining projects.

simon.hartley@odt.co.nz

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