23 of 33,853 Value Rotation | Fletcher Building Update

12 November 2020

Global markets were mixed overnight (S&P 500 Index -0.1%) as the “rotation” by investors into value stocks continued and small-cap US stocks outperformed. The Technology sector, which has been a big winner during COVID-19 continued to sell-off, with the Nasdaq Tech index down -1.4%. Amazon shares fell as the online-retail giant faced an antitrust complaint from the European Union, while Alibaba Group tumbled after China tightened the scrutiny over big internet companies.

This dynamic is playing out globally, and closer to home the big Aussie Banks such as NAB and Westpac rallied 7% and 5% yesterday, while glamour technology names which have been winners in the pandemic such as Afterpay lost -10% and datacentre darling Next DC fell -13%.

Fletcher Building (FBU:NZX / FBU:ASX)
Fletcher Building saw the day’s second biggest rise on the NZ market yesterday, climbing 15% after it told the market operating profit in the past four months was up 55% – which was better than expected and released on a day where investors were looking for exposures to the domestic economy.

It looks as if FBU’s cost out program has been more successful and demand growth more robust post the lockdown bounce.
Management are reluctant to commit to a 1st half dividend as it would then have to forego a level of debt covenant relief. However, the company noted that if no dividend is declared, the 2nd half dividend could get a boost

While the update was encouraging, risks remain given limited order book visibility beyond early 2021. However, we expect NZ residential to remain robust underpinned by low interest rates and tight supply. We currently have a High-Risk BUY on FBU as positive momentum is tempered by medium term macro uncertainty, persistent competitive pressures and execution risks.


Australia & New Zealand Market Movers

The Australian market added to gains on Tuesday (ASX 200 Index +0.7%) rallying to the highest level since February’s pre-COVID sell-off. The big banks all made string gains and lifted the index.

Real estate also performed well. Westfield shopping centre owner Unibail Rodamco rose by almost 44%. Meanwhile, Corporate Travel jumped 1%, Virgin Money added 16%, and Oil Search jumped 17%. Building material maker James Hardie shares lost -5% after it saw its net profit fall by 49% to $US96.2 million (132.1 million) for the first half of the financial year.
The New Zealand market was higher yesterday (NZX 50 Index +0.4%) as vaccine hopes prompted a rotation by investors into the hardest hit COVID-19 stocks. Investors’ focus shifted towards companies set to benefit as the vaccine clears a path to return to normal life.

Fisher & Paykel Healthcare dropped -12% as it has been a clear benefactor of the pandemic, while Pushpay fell -5% as it held an uninspiring investor day and as technology stocks came under selling pressure. Cinema software firm Vista Group International was the biggest winner, leaping 20% as the vaccine raised the possibility of movie theatres reopening around the world.

Travel stocks rallied as investors imagined a return of the international tourist. Tourism Holdings rose 11%, Serko was up 9%%, Air New Zealand climbed 8%, and Auckland International Airport advanced 7%. As international travel requires jet fuel, Z Energy rose 6% on the hope fuel volumes may return to pre-pandemic levels sooner.

3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​An early focus naturally will be on the strength of Trump’s lawsuits – and whether these threaten to rekindle election uncertainty.
  2. Locally, the week ahead is dominated by the RBNZ’s OCR review on Wednesday.
  3. ​​​​​​​​​Second wave COVID-19 news is back at the top of headlines with social distancing measures re-introduced across Europe.


Global markets were mixed overnight (S&P 500 Index -0.1%) as the “rotation” by investors into value stocks continued and small-cap US stocks outperformed.

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