By Jenny Ruth
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Sunday 11th July 2010 |
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Fletcher Building has a good franchise with leverage to the New Zealand building recovery but investors should expect that recover to plateau for six months, says First NZ Capital analyst Kar Yue Yeo.
"NZ residential building consents in May weakened 9.8% (seasonally adjusted versus April) and confirmed what houses sales volume has signalled in the last four to five months - NZ residential recovery has levelled off," Kar Yue says.
He is still forecasting about 19,000 consents in the year ending June 2011 and 22,000 the following year but says there could be about a 2,000 downside risk in 2011, based on the latest data.
He says every 1,000 variation in his consents assumption changes his forecast of Fletcher's net profit for the year ending June 2011 by 2.4%. His current forecast for that year is $378 million.
"House sales (and) mortgage approvals will be interesting barometers for the NZ residential property sector over the next three months."
Kar Yue expects the volume of non-residential work put in place will decline by about 15% in the year ending June, 2011.
"We remain comfortable that weakness in Fletcher's stock price represents a buying opportunity on a 12-month view." His 12-month target price is $9.50.
Rating: Outperform
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