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Kingfish's 3.1% stake in Fletcher Building paying off

Wednesday 18th July 2018

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Fletcher Building shares have gained about 14 percent since Kingfish took a 3.1 percent stake and the listed investment firm's manager remains upbeat on the stock. 

"We have watched it for a long time. We have watched it closely as all of the turmoil has played out and we thought enough things had changed fundamentally for us to make a small, initial investment in the company," Fisher Funds Management senior portfolio manager Sam Dickie told BusinessDesk. He declined to comment on whether the fund might be looking to increase that stake. 

Fletcher Building stock is rated an average 'hold' based on nine analyst recommendations compiled by Reuters, with a median target price of $6.55. It last traded at $6.92. Kingfish bought the stake in April when the stock was around $6.15.

Since then the beleaguered building company unveiled a $1.25 billion refinancing plan including a deeply discounted offer to shareholders to raise $750 million and a $500 million standby banking facility that could be used to repay noteholders in the US private placement market.

The Auckland-based company also announced plans to sell its Formica and steel roofing tiles businesses, retreating to its main New Zealand and Australian markets. Fletcher dumped its former chief executive last year in the face of losses at its Building + Interiors unit.

Dickie was upbeat about Fletcher's new chief executive Ross Taylor and said the "recently presented strategic plan is logical".

According to Dickie, "it's slimming back down to its core, cutting head office costs and they have fixed the balance sheet and the stock was trading at unrealistically low valuations that started to turn our head."

In a quarterly update newsletter posted on the stock exchange, Dickie reiterated that Fletcher Building's sale of Formica and Roof Tiles could generate more than $1 billion and may allow a capital return to shareholders.

He said other Fletcher units - such as Golden Bay Cement, Winstone Wallboards and PlaceMakers - dominate their respective markets. "These core businesses have clear moats and help the company to deliver solid cash flow," he said. 

The Kingfish portfolio delivered a gross performance return of 8.2 percent in the three months to June 30. Its shares last traded at $1.39, an 8.6 percent discount to the net asset value of $1.52 per share, or some $294 million. 

The investment entity focuses on New Zealand companies and counts Fisher & Paykel Healthcare and Mainfreight as its biggest holdings, at 12.1 percent and 10.7 percent respectively, followed by Freightways at 9.2 percent and Ryman Healthcare at 7.7 percent.


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