Fletcher building profits may erode

Haley Van Leeuwen.
Haley Van Leeuwen.
Fletcher Building shares have hit a 20-month high, but the forecast strength of the New Zealand dollar against its United States counterpart could erode long-term after-tax profits.

While the share price, up more than 5% during the past week after climbing to $8.86 yesterday, reflects strong investor confidence, the kiwi's predicted strength this year has seen Craigs Investment Partners pare back after-tax profit expectations for 2013 and 2014, respectively by 0.7% to $337 million and 0.9% to $503 million.

Economists have suggested the kiwi will be unlikely to spend much time below US80c this year, while Craigs broker Peter McIntyre yesterday said an earlier forecast of an average US81.4 this year was revised up a further 1.4% to US82.5c.

''What's been driving the price is investors looking for [dividend] yield and security; which is coming from the Christchurch rebuild and the more than $1 billion backlog in work orders,'' Mr McIntyre said yesterday.

Forsyth Barr broker Haley Van Leeuwen said key short-term drivers were Christchurch rebuilding and general construction recovery - reflected in the share price.

''We expect building activity in New Zealand to begin a sustainable recovery in full-year 2013 ... resulting in an uplift in earnings lift over the next few years,'' she said.

While rating Fletcher stock as ''accumulate'', Ms Van Leeuwen was targeting an entry point below the price now.

The stronger kiwi forecast had impacted on Craigs estimates of Fletcher's division Laminates and Panels and also its Crane Group (an Australian acquisition), prompting a 12-month price target downgrade from $9.33 to $9.24.

Mr McIntyre said investors were aware of some Australian construction companies performing well, and the positive exposure of Fletcher to housing shortages in Christchurch and Auckland.

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