| Stock in Focus: Fletcher Building (FBU.NZX) |
| Fletcher Building shares have been on a strong run recently. Given the macroeconomic backdrop (weaker house prices, slowing construction demand, and liquidation of building companies), we see earnings have done well to hold up but outlook remains weak. The stock is ‘fairly’ valued on a soft-landing case – in our opinion which is more towards the optimistic side. We see this as an opportunity to take some profit by selling half of our position from the NZ portfolio – given it trades at 12-month high which hasn’t held up well. We downgrade FBU to Neutral, and would-be buyers at more attractive risk-adjusted values. |
| As seen above Fletcher’s 12-month high is $5.76, and it does not hold up well above $5.40 – which is a take profit window which does not last long. While it has spent more time below $4.95 over the last 12-months (shaded green) we believe this is an attractive buy level taking into account a significant deterioration in construction market. |
Pacific Edge, were temporarily put into a trading halt to announce:
“A decision from Novitas1 and First Coast to delay the implementation of the Local Coverage
Determination (LCD, L35396) released in early June that would have seen Medicare coverage of Cxbladder cease in the US on 17 July 2023.”
“Details are being worked out but there is a commitment from these two MACs (same parent company) that the LCD will not proceed as is and that the LCD will go through the LCD process again with an open meeting and public comment period”.While not fully out the woods yet, but an open conversation to spark some optimism. We remain Neutral on the stock – let it ride if its a small chunk of your portfolio, we wouldn’t add fresh capital here.
US
They’ve been some of the biggest detractors to our US model portfolio – Warner Music Group is down -16.14%, while Disney is down -2.52% and Paramount down -0.49% (we bought well, relatively speaking). Our biggest contributors have been tech – Adobe (+47%), Microsoft (+32%) etc. Tech has had a great year. Media has had quite a bad year.
For one, the “gold standard” – Disney – saw multiple flops: “The Little Mermaid”, “Elemental” and a new “Indiana Jones”. It’s rare to see such valuable IP flop so badly, especially in the era of IP-backed media (the endless stream of Marvel, etc). WarnerBrothersDiscovery has had a similarly rough year – CEO Zaslav has a herculean task to slash the entertainment behemoth’s debt pile; he’s done this is a fairly quotidian way – slashing the management team at TCM one day; hiring then firing CNN CEO Chris Licht; canceling “Batgirl”, changing HBO Max to just Max – the list goes on. Paramount has arguably had the best year, with the continued success of the ‘Yellowstone’ franchise. The stock of all companies involved has taken a beating – DIS sits at +0.89% YTD while the S&P 500 has increased +16% YTD. What gives?
Partially it is poor performance: people love content and they pay for content, but massive box office flops have a material effect on the bottom line. But there’s another case to be made that not a lot of love has gone to the content business as of late – it’s shifted to technology. Only so much flow to go around. Partially it’s the key teething issue of the “streaming” promise – how does this thing make money? There are so many streaming services and they are all in stalemate, competing with each other and (mostly) burning money. Consolidation is the natural answer – the questions are i) when and ii) who? Comcast is the likely suitor for WBD, but there’s a lockup agreement until 2024 – will that be the year? Paramount is anyone’s guess – it’s small ($10B) and we think it trades at an obvious discount to its SOTP: the question there is – will Shari and the Redstone family sell? (think ‘Succession’). As with all enterprises within capitalism, the more monopoly-like characteristics a business has the more money it can make. We’re not there yet. DIS PARA WBD in order of preference.