Daily ShareChat: Fletcher Building

Fletcher Building's better than expected earnings before interest and tax (EBIT) of $261 million reflected the benefits from Australian and the New Zealand government-funded insulation programs as well as cost savings, says First NZ Capital analyst Kar Yue Yeo.

He had estimated EBIT would come in at $230 million.

Fletcher Building was able to capitalise on the insulation programs to a greater extent than he had anticipated. It was also able to deliver its cost savings target for Laminex and Formica earlier than he had expected.

The stock is a proxy to a NZ and Australian economic recovery, he says.

"We are cognisant that the recent housing recovery, particularly in NZ, still appears fragile," he says. The recent reversal in mortgage approvals and house sales increase the uncertainty of New Zealand housing approvals recovering to mid-cycle in 2011, he says.

Nevertheless, residential approvals in both NZ and Australia are generally trending in a positive direction and the non-residential building sector appears to have stabilised for now, Kar Yue says.

"We continue to monitor house sales and bank lending practices as these have generally proven to be reliable lead indicators of housing construction activity."

Kar Yue has a valuation target of $8.75 on the stock.

BROKER CALL:  First NZ Capital rate FBU as neutral.

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