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23/11/2018 — General
Hard hit for Fletcher shares
By Simon Hartley

Fletcher Building Ltd’s (NZX & ASX: FBU) market capitalisation has tanked by more than $970 million so far this week, as investors rid themselves of the stock.

Fletcher shares have been hammered more than 20% from shareholders since announcing a 10% earnings downgrade on Monday - trading down yesterday to their worst level since 2004. At $4.55, the stock was down 30% on a year ago.

Craigs Investment Partners broker Peter McIntyre said amid “very heavy trading” more than 17.6 M Fletcher shares had been traded since Monday - the declining share price amounted to a $971 M loss in market capitalisation.

“The fall is 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 could regain 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, Foster said.

He predicted in July that Fletcher's ambition 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 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, restructuring of its operations, and this week's 10% earnings downgrade.

The B+I issue saw chief executive Mark Anderson quit hurriedly, followed shortly after by chairman Sir Ralph Norris. Ross Taylor was installed as chief executive and earlier this year Fletcher completed raising $750 M and renegotiated lending terms, then in June unveiled a refocus on New Zealand and Australia.

Peter 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 have 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 the hostile, and failed takeover play for Steel & Tube by Fletcher; offering $340 M 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 M last month.

“The dividend guidance offers little solace to investors, who saw Fletcher willing to commit more than $300 M 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,” McIntyre added.

*Simon Hartley is senior business reporter and assistant chief reporter for the Otago Daily Times.

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A major construction job for Fletcher Building. Photo: Reseller News.