Consolidation, Gold Dips | Fletcher Building Update

10 September 2019

Global markets ​were mixed overnight as stocks took a breather after a solid bounce last week. Financials and Energy stocks rallied on the a move higher in US interest rates and a crude oil jump – after Saudi Arabia’s new energy minister signalled that OPEC and its allies will continue with production cuts.
 

Stock in Focus: Fletcher Building (FBU:NZX / FBU:ASX)

​​​​​​​​​​​​​​​​​​​​​​​​​​​​FBU recently ​delivered​ their 2019 full year result which showed a return to profitability, however highlighted the challenging environment FBU faces both in NZ and especially in Australia. FBU reported a net profit after tax of $164m for the 2019 financial year, a turnaround from last year’s loss of -$190m, and accordingly recommenced their dividend with shareholders receiving a 23 cents per share full year dividend for the 2019 financial year. 

Ignoring the B+I (construction) loss last year, operating earnings fell -12% from last year down to $631m.  This is unfortunate considering the New Zealand business is operating within a construction boom (however activity has been constrained by lack of capacity), as a result the market continues to remain challenging to navigate as competition remains and higher input costs have weighed down on earnings which fell -7.2% from last year. In Australia where residential construction activity has weakened considerably it is creating tough market conditions and earnings (EBIT) have halved – which is not new news. Given the slowdown in Australian construction activity acting as a near-term headwind and operations in New Zealand continue to remain challenging, despite supportive levels of building activity (which we expect to remain stable), our view remains largely unchanged. 

FBU look like a multi-year turnaround play especially given its relatively cheap valuation there is potential upside albeit there ​are​ still considerable execution and cyclical risks, which appear to be mostly priced in at current share price levels.

We currently have a BUY (High-Risk) recommendation on ​FBU.
Members ​can login to read our full update on FBU.

  
Australia & New Zealand Market Movers

​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​The Australian market was virtually flat yesterday (ASX 200 Index +0.​01​%)​. 
The gold sector posted its worst session in four weeks​, while the banks and some companies leveraged to the consumer performed well on the back of strong lending data. Market uncertainty and the trade war have been supportive for the gold prices of late. Central banks have also bought the most gold since the gold standard was eliminated in the 1970s, and investors are putting their money in gold because bonds are yielding a negative coupon rate.

The New Zealand market took a breather on Monday (NZX 50 Index ​-​0.14%) ​as NZ shares snapped a six-day winning streak with the benchmark index near a record. A2 Milk shares led the market lower, while Synlait Milk, which supplies A2 and is reporting earnings on Thursday was also lower.

 

3 Things Markets Will be Watching this Week

  1. ​Trade War related news-flow is likely to continue to feature in headlines.
  2. US inflation data is published on Thursday.​
  3. Thursday's policy meeting at the European Central Bank​ will be watched closely​

 

Have a Great Day,
 

Team

Global markets ​were mixed overnight as stocks took a breather after a solid bounce last week.

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