Fletcher’s worth plunges $970m in week

Peter McIntyre
Peter McIntyre
Fletcher Building’s market capitalisation has plunged more than $970 million  this week, as investors rid themselves of the troublesome stock.

Fletcher shares have fallen more than 20%  since  the company announced a 10% earnings downgrade on Monday and were  down yesterday to their worst level since 2004.

At close,  the stock was trading at $4.60, down 30% on a year ago.

Craigs Investment Partners broker Peter McIntyre said  more than 17.6 million Fletcher shares had been traded since Monday,  the declining share price amounting to a $971 million loss in market capitalisation.

"The fall’s more than 20% and is significant.

"Retail and institutional investors have decided they have better places to park their money," he said.

Forsyth Barr broker Damian Foster said that following the series of earnings downgrades from Fletcher, it could be some time before the company regained the confidence of the investment community.

While Fletcher was trading at a discount against its Australian peers and the broader market,  its key construction cycle exposure was near peak and the company was facing numerous competitive, cost and reputational challenges, Mr Foster said.

He predicted in July that Fletcher’s  bid to double earnings before interest and tax over five years in Australia would not be straightforward, given the competition and timing of the construction cycle there at present.

Fletcher has been under mounting pressure since accumulating $952 million in losses over the past two financial years, from wayward construction division Building + Interiors (B+I) contract pricing and restructuring of its operations.

The B+I issue resulted in chief executive Mark Anderson quitting hurriedly, followed shortly after by chairman Sir Ralph Norris.

Ross Taylor was installed as the chief executive and earlier this year Fletcher completed the raising of $750 million and renegotiation of its lending terms, before unveiling in July a refocus on New Zealand and Australia.

Mr McIntyre said aside from the B+I contract issues and restructuring, investors had several other issues to consider in recent months.

"This is all coming off the back-drop of New Zealand having been through its biggest construction scene over the past 10 years," he said.

Fletcher’s restructuring had been reliant on an upturn in Australia, but several construction areas there had  been showing signs of softening.

"They [investors] were sold the story of the Australian turnaround being the ‘growth engine’, but that has significantly stalled," he said.

Another issue weighing on investor sentiment was Fletcher’s hostile, and failed, takeover play for Steel & Tube with an offer of $340 million in cash and dividends.

That play, for a 100% takeover, was stopped when NZ Steel bought a 15.8% blocking stake in Steel & Tube for $42.3 million last month.

"The dividend guidance offers little solace to investors, who saw Fletcher willing to commit more than $300 million for Steel and Tube recently," he said.

Another factor would be the effect on the value of subsidiary businesses Fletcher had on the market at present, such as Formica.

"The New Zealand business is also expected to be softer and with the pull-back in international building multiples, we drop the value attributed to the Formica sale," Mr McIntyre said.


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