By Jenny Ruth
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Wednesday 13th October 2010 |
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Fletcher Building is performing well but its outlook is still patchy, says Nachiket Moghe at Aegis Equities Research, which is owned by Morningstar.
The company has refrained from giving any earnings guidance for the year ending June 2011, citing a high degree of uncertainty in many markets, Moghe says. Management did say July trading was in line with its expectations.
Fletcher Building reported a $301 million underlying net profit for the year ended June 2010, at the top end of management's guidance.
Moghe has cut his 2011 net profit forecast by $20 million to $320 million. "This is based on our belief that end market demand, especially in New Zealand, remains quite fragile and has the potential to surprise on the downside," he says.
The ending of Australia's stimulus program is likely to result in lower insulation earnings. Moghe estimates the contribution to the building products division's earnings in the year ended June from the stimulus program was between $25 million and $30 million.
The Formica business performed "exceedingly well" in the latest year, the best since it was bought in May 2008. "Management expects market conditions in US and Europe to remain subdued while Asia is expected to remain reasonably buoyant."
Recommendation: Hold.
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