Daily ShareChat: Fletcher Building

Building construction activity is likely to be boosted by about $2 billion a year over the next 10 years as a result of the Christchurch earthquake, with the full impact starting to be felt in the year ending June 2013, which should boost Fletcher Building's earnings, says Nachiket Moghe, an analyst at Aegis Equities, which is owned by Morningstar.

The leaky home problem is likely to contribute about $1.1 billion over a similar time frame, Moghe says.

Housing starts are at a record low of about 15,000 a year but need to be in the region of 20,000 to 25,000 just to keep up with demand, he says. Demand is running well ahead of supply, particularly in Auckland where an acute shortage is developing.

While the Fletcher Building's recent downgrade led him to cut his net profit forecast for the year ending June to $332 million from $351 million previously, he has also raised his 2012 forecast, including Crane Group, which is soon to become a subsidiary and about a six-month impact from the Christchurch rebuilding, to $465 million.

Moghe expects earnings before interest and tax (EBIT) of $775 million for the year ending June 2012 with Crane contributing $112 million.

"Fletcher Building is not capactiy constrained and wouldn't need to lift capacity to support volume growth." Moghe values the stock at $6.83.

Recommendation: Hold.

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