Market Limbo | Fletchers’ Sells Formica, Dividend to Return

19 December 2018

Global markets were mixed overnight as investors remain cautious ahead of this week’s crucial 2-day US Federal Reserve Meeting which began overnight. The UK market also remains under heavy pressure with ongoing Brexit uncertainty. 

As we touched on earlier, while the Fed is likely to lift interest rates on Thursday morning, there will be more focus on the Fed's outlook for 2019.
 

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

Fletcher Building shares rose yesterday as the construction company announced the sale of its Formica unit for US$840 million and said it will resume paying dividends (likely to be announced in February).

The sale of the Formica business was not a surprise, and in line with analyst expectations, with the date of the announcement well within the up to 18-month timeframe that managing director Ross Taylor suggested when he announced the decision to sell in April. “Our five-year strategy is to refocus Fletcher Building’s capital and capability behind our New Zealand and Australian businesses with building products and distribution at our core” Taylor said.

The sale provides investors with some comfort and further strengthens Fletcher’s balance sheet at a time when there are risks around macroeconomic conditions. Both the Australian and NZ property markets are showing signs that they have peaked, and the construction cycle is likely entering a slowing period, in our view. In saying that, the market is well aware of these risks with FBU shares trading at decade lows.   

We currently have a BUY (High Risk) rating on FBU given its turnaround potential.

Members should look out for a full update on FBU to be released in our weekly report. 

 
Australia & New Zealand Market Movers

The Australian share market gave back recent gains on Tuesday (ASX 200 index -1.22%) with losses across the board dragged as energy stocks weighed most heavily on the market following tumbling oil prices.
In stock news, Caltex shares fell sharply after it issued disappointing profit guidance – saying it is on track to report a replacement cost operating profit of between $530 million and $553 million. Telstra shares rose despite chief executive Andy Penn warning the coming year would involve some "heavy lifting". On Tuesday, the Australian Communications and Media Authority granted Telstra early access to the 5G spectrum in won at auction earlier this month. While 5G-enabled smartphones are yet to be released, the telco said it expected it would help deliver world leading speeds.

 

The New Zealand market was lower yesterday (NZX 50 index -0.65%), joining a sell-off across Asia. Heartland shares led the market lower as its shares hit the lowest close since August 2016. The local lender been under pressure since the Reserve Bank unveiled plans/a proposal that would require a significant increase in the capital held by banks. Some analysts estimate Heartland would need to boost its capital holdings by about $1 billion. There is also speculation in the market that the RBNZ’s proposal may see the large Aussie Banks split off the NZ divisions.

 

3 Things Markets Will be Watching this Week

  1. Tensions between the US & China following the arrest of Huawei’s chief financial officer will likely dominate headlines.
  2. The US Federal Reserve makes its final interest rate decision for the year Thursday morning (AU/NZ time).
  3. NZ economic growth (GDP) figures and Australian employment data is also published Thursday.

 

Have a Great Day,
 

Team

Global markets were mixed overnight as investors remain cautious ahead of this week’s crucial 2-day US Federal Reserve Meeting which began overnight.

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