Fletcher Building could be positioning itself for a break-up and possible sale of divisions after yesterday announcing a structural change, Craigs Investment Partners broker Peter McIntyre said.
Streamlining the business into five divisions would give an opportunity for outside investors, particularly from overseas, to get a clearer look at what Fletcher Building was doing and the impact each division had on the performance of the company.
"Fletchers seems to be the underperforming baby of the NZX50, despite being in the top 10.''
In March last year, Fletcher Building's shares were trading at $9.01. By September, the share price had fallen to $6.71.
The fall followed the announcement the Christchurch rebuild was about halfway and it was likely building activity would diminish in the city, Mr McIntyre said.
Also, the Government announced it was opting for cheaper building materials through legislation.
"Fletchers has never recovered from that time. Sometimes it touches $7 a share before falling back into the $6 range.''
The shares lifted to $7.07 after the streamlining announcement, he said.
Fletcher Building chief executive Mark Adamson said that the new divisional structure reflected the changes to the business portfolio, as some businesses had been divested over the past two years and the acquisition of Higgins was announced yesterday.
"We have made significant progress in reshaping our portfolio, with a focus on divesting non-core businesses and investing where we see the strongest opportunity to further grow earnings. The new structure accommodates the changes to the portfolio. At the same time, it will allow like activities to be grouped together and operating efficiencies to be pursued.''
In addition, Lee Finney had been appointed to the new role of chief transformation officer.
In the position, Mr Finney would have responsibility for all of Fletcher Building's centres of excellence, including the marketing, operations excellence and procurement functions.
He would also be responsible for the acceleration of the growth and cost reduction initiatives and would lead a core team of business transformation specialists.
"With the creation of the chief transformation officer role, we will have a dedicated senior executive who will be focused on accelerating the growth and cost reduction initiatives. Building on the FBUnited transformation programme, we have identified significant further opportunities to eliminate inefficiencies and improve our sales and market capabilities. Lee will be responsible for delivering on these opportunities,'' Mr Adamson said.
Mr McIntyre said it would only make sense for Fletcher Building to sell off any of its divisions at the "right price'', or some form of premium. Some divisions were more important than others in generating cash and profits.
International was one which possibly could be sold off, he said.
The purchase of Higgins, a family firm, for $315 million had been expected and would not be a surprise to the market.
It would be relatively small in the scheme of Fletcher Building's business (about 6% of total earnings before interest and tax) and was a complementary business Fletchers was familiar with.
The industry offered ongoing growth and recent contracts were relatively long dates, he said.
"On face value, it is a sensible acquisition. Being a contracting business means earnings can be lumpy and continued execution will be key to success over the longer term.''
The purchase did not change Craigs' overweight recommendation on Fletcher Building shares, Mr McIntyre said.
Separately, Fletcher Building announced it had sold Rocla Quarry Products to Hanson Construction Materials for $A150 million ($NZ163 million).
A further $A44 million was gained by selling to other third parties joint venture quarry assets.
At a glance
Building products: Manufacture of light and heavy building materials in New Zealand and Australia. The division will be led by Matt Crockett, chief executive of the heavy building products division.
International: Encompasses Fletcher Building's Laminex, Formica and roof tiles business. Francisco Irazusta has been appointed chief executive.
Distribution: Building materials, plumbing supplies and steel distribution activities in New Zealand and Australia. Dean Fradgley will continue as chief executive of the division which includes the Stramit and Tasman Sinkware business in Australia, and Dimond Roofing in New Zealand.
Residential and land development: Residential development business in New Zealand together with the development of existing non-residential land holdings. Steve Evans, currently chief operating officer of Fletcher Living, has been appointed chief executive of the division.
Construction: Building and engineering construction activities in New Zealand and the South Pacific, together with the Higgins contracting businesses in New Zealand and Fiji. Graham Darlow will continue as chief executive.
