By Jenny Ruth
Thursday 24th February 2011
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Fletcher Building's first-half earnings before interest and tax (EBIT) of $285 million were about 3% below analysts' consensus forecasts but above his $274 million forecast, says Kar Yue Yeo, an analyst at First NZ Capital.
But, the company's reaffirmation of its full-year 2011 guidance – for net profit to come in about $354 million - "is constructive," Kar Yue says.
The ramp up in post natural disaster reconstruction in Canterbury, Queensland and Victoria and leaky home repairs "should provide significant earnings plugs against the risks from a weaker NZ housing recover profile in the next 12 to 24 months," he says.
He expects New Zealand residential building consents will bottom in the current quarter and rebound from about 12,500 a year currently to about 15,000 a year by mid year and to further improve to about 16,500 in the year ending June 2012.
"Our analysis suggests that Fletcher Building could deliver $950 million in EBIT in the year ending June 2014 on a mid cycle scenario," Kar Yue says.
"On this basis, Fletcher Building is potentially worth over $10 in a few years."
But some discount is warranted, given the NZ housing and non-residential construction recovery risk, he says. Kar Yue has a 12 month target of $9.40 for the share price.
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