Week Ahead, Optimism | Fletcher Building

10 June 2019

Global markets ​rallied on Friday with Wall Street up over 1% as a sharp slowdown in US job growth (as well as weak wage growth) raised hopes of Federal Reserve interest rate cuts, with the market now pricing in a more than 80% chance of a cut at the Fed meeting in late July. It generally appears as though "bad news" is "good news" once again given expectations for the US Fed to become more supportive by lowering interest rates. 

Over the weekend Trump said Mexico agreed to help contain the migration of mostly Central Americans crossing the southern US border. As a result, he won't impose tariffs on Mexican imports which were set to take effect on Monday, that have now been delayed indefinitely.

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

​​​​​​​​​​​​​​​​Shares ​in ​Fletcher Building have been under pressure after Precinct Property said the​ Commercial Bay development which is being built by Fletcher’s will now take even longer​ ​and cos​t​ an extra $10m – largely due to the delays. 

​Fletcher have said the delays were accounted​ for within earlier provisions​, although we would think there are clear risks here. 

Fletcher​'s also​ readjusted its annual earnings guidance following the completion of its Formica Sale – which is settling a​ month earlier than anticipated.​ As a result,​ Fletcher now expects underlying earnings (EBIT) to be between $620m and $650m, down from its​ previous guidance of $650m to $700m. This is consistent with the lower end of its original earnings​ guidance when adjusted for the $30 million Formica impact.

FBU are a step closer to being a multi-year turnaround play in our view​, although there are still considerable execution risks given the slowdown in Australian construction activity ​and major unfinished projects such as Commercial Bay.

We currently have a ​BUY (High-Risk)  recommendation on F​BU​.
Members ​should look o​ut for a full update on F​BU to be released in Wednesday's weekly report​.

Australia & New Zealand Market Movers

​​​​​​​​​​​​​​​​​​​​​​​The Australian share market ​continued to ​ral​ly on Friday​ (ASX 200 index +0.​95​%) ​with gains broad based across the ASX.  Construction rates across Australia had their sharpest falls in six years in May as the building of houses and apartments slowed and jobs in the sector continued to trail off, according to a survey of businesses in the industry.

The New Zealand market ​was higher on Friday (NZX 50 index +0.​6​1%) ​as the NZX index climbed back above 10,000, led by Synlait Milk, on news the dairy company is appealing a ruling that may prevent the opening of its second processing facility. Mercury NZ announced plans to raise up to $300 million in a subordinated capital bond offer. If the offer goes ahead and is successful, Mercury plans to use the funds to redeem $300 million of existing listed debt that's currently paying annual interest of 6.9%.

3 Things Markets Will be Watching this Week

  1. ​​​​​Trade War headlines are likely to ​remain drivers of investor sentiment.
  2. Closely watched US inflation  data will be released on Thursday​.
  3. The latest monthly Chinese economic updates are published on Monday.

Have a Great Day,


It generally appears as though "bad news" is "good news" once again given expectations for the US Fed to become more supportive by lowering interest rates. 

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