Global markets were mixed overnight, as the US market was weighed on by a drop across retailers and tepid earnings from some big names, while the tech-heavy Nasdaq edged higher. As we have discussed, US earnings season will be watched as closely as ever given the current level of the market.
Stock in Focus: Fletcher Building (FBU.NZ / FBU.AX)
The big news locally yesterday was that Fletcher’s CEO Mark Adamson will leave the company with immediate effect with the loss of share options and other incentives as the company once again cut full-year earnings guidance and flagged an impairment against Australian assets.
Fletcher's said operating earnings in the year ended June 30 were about $525m, down from $682m in 2016 and below the guidance $610m-to-$650m range the company gave in March. The downgrade was disappointing as it was essentially more of the same issues which were flagged in March.
The cause of the downgrade was once again driven by delays and cost overruns in the construction division. FBU currently has 3 major projects, one which is performing well and two major construction projects which have caused issues and another downgrade to earnings. With the major project nearing completion, FBU stated it accounted for about ½ of the latest downgrade, while ¼ of the new losses are to be driven by the 2nd major project to be completed in 2019 (believed to be the SkyCity Convention Centre in Auckland).
Post the analyst conference call, the shares did rebound off lows as while there are still risks, there was comfort that the impact of cost overruns should pass as and when the problematic projects are completed.
are currently BUY rated on FBU and we remain BUY rated. We believe that risk/reward remains attractive given the majority of contract losses have now likely been realised, and that 2018 earnings are likely to recover while the backdrop for FBU’s businesses remains supportive.
Members should look out for our full update on FBU to be released in our next weekly report.
Australia & New Zealand Market Movers
The Australian share market continued to move higher yesterday (ASX 200 index +0.51%) as gains across the Banks led the market. In terms of economic data, solid but unspectacular jobs numbers briefly lifted the Australian dollar to a fresh 2-year high.
Retailer Myer saw its share price tumble after management warned that it is likely to miss its 2017 financial year net profit forecast of more than $69.3m. The department store operator now expects profit in the range of $66m and $70m due to weaker-than-expected trading conditions during its June-July stocktake sales events.
The New Zealand market sold off on Thursday (NZX 50 index -0.78%), dragged lower by Fletcher Building hitting a six-week low. SkyCity also dropped slightly as the completion of its $470m convention centre, widely understood to be one of the two major projects which are blowing out Fletcher's budget, has been delayed to the middle of 2019 from February 2019.
3 Things Markets Will be Watching this Week
1. The US Corporate Earnings season will be centre stage
2. Minutes from the last Reserve Bank of Australia are released Tuesday
3. NZ inflation data is also published on Tuesday
Have a Great Day,
Team