Daily ShareChat: Fletcher Building

Fletcher Building is a relatively solid proxy for a cyclical recovery in the New Zealand economy over a three-year time frame, says First NZ Capital analyst Kar Yue Yeo.

However, the stock is trading near fair value and there is some risk of the timing of the recovery in the New Zealand non-residential sector.

"This appears to be slipping into (the year ending June) 2012 and possibly 2013 in terms of impact on earnings," Kar Yue says.

His $8.75 a share valuation is based on mid-cycle earnings discounted back to present value.

"Near-term (six months), we struggle to identify potential catalysts for Fletcher Building to outperform the market," he says.

"Balancing the near-term valuation constraints against the quality of Fletcher Building's franchise and the industry structure, we think maintaining a market-weight position on Fletcher Building in the portfolio is appropriate."

The company's has announced scaling back its insulation production and reducing its headcount in Australia in response the the government ending its previously announced insulation program will mean one-off costs of $18 million but it has maintained its $278 million to $303 million net profit guidance for the year ending June this year.

Kar Yue says he expects the result to come in at the top end before the one-off costs.

BROKER CALL: neutral

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