Sharechat Logo

Daily ShareChat: Fletcher Building

By Jenny Ruth

Sunday 17th October 2010

Text too small?
 Jenny Ruth

Fletcher Building's Formica business is trading well in the current weak economic conditions with its earnings having stabilised and improved, says Rob Mercer at Forsyth Barr.

Formica "as a possibility of achieving the magical milestone $100 million target earnings before interest and tax (EBIT)" by the year ending June 2013, earlier than expected, Mercer says.

His forecasts don't assume Formica will achieve $100 million EBIT until the year ending June 30, 2015. Formica's EBIT in 2010 was $34 million and Mercer is forecasting $70.3 million for the current year. This "is at the upper end of market expectations and could prove a touch optimistic."

The restructuring over the past year, including cutting staff numbers, improving manufacturing processes and narrowing the product range, has greatly improved Formica's product quality and service levels, Mercer says.

He values Formica at $800 million compared with its $1.05 billion acquisition price in May 2007 and with Fletcher Building's current $750 book value. Fletcher Building believes it can achieve a 15% return on assets from Formica and, based on its book value, that implies a target EBIT of $113 million, Mercer says.

He says Formica has growth opportunities through expanding sales in Mexico, China, India and Germany.

Recommendation: Buy.



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Fletcher Building faces probe into plasterboard supply deals
Fletcher closes Christchurch plasterboard plant after finding asbestos
Fletcher Building names Charles Bolt as general counsel, replacing Farrell
Fletcher beats estimates with $326M FY profit as NZ revives, Australia stays flat
Fletcher executive Worley leaves as underperforming Crane unit brought in-house
Fletcher puts strategy under microscope seeking $70M annual gain, will shed jobs
Fletcher Building 1H profit edges up
Fletcher Building capital notes rollover at 5.4 percent from 8.9 percent
Fletcher Building offloads CSP Coating galvanised steel unit
Fletcher not abusing its role running Canterbury home repairs, EQC says