FBU-Fletcher Building

[Shareguy]

Insert from Craig's latest report.  Will be interesting to see tomorrow.

Craig's say good buying.

FBU overweight maintained; value on both DCF and relative basis
In this report, we preview the upcoming FBU result (Wed 17 Aug) and revisit our expectations of the NZ resi construction cycle through to 2030, with a particular focus on FBU's medium-term earnings forecast. FBU reaffirmed its guidance as part of its Investor day in Jun-22, with an FY22 EBIT target of c.$750m, FY23 EBIT target of $850m+ (assuming flat market activity in FY23 vs. 2H22), and a through-the-cycle EBIT margin target of c.9-10% (2H22 margin of c.9.5%). With its FY22 EBIT largely printed (CIPe $749m), we turn to FBU's outlook for FY23/24 and plans for its c.$500m growth capex over the next three years. Our modelling suggests the market continues to undervalue the stock both on a DCF ($5.89, +9.5% upside to last close) and relative basis (trading on CIPe 10x FY24 PE, long-run average 13x), and we see upside potential to the share price on result day providing guidance remains firm and data/messaging supports its through-the-cycle earnings in a macro environment that continues to deteriorate. Maintain Overweight.

FBU looks cheap on relative PE valuation
Source: Bloomberg, CIPe
 FBU has historically traded at an 9% discount to its Australian peer multiples, but based on our EPS forecasts, FBU currently trades on an one-year forward PE of 8.4x, a 27% discount to its Australian peers which trade at 11.5x. Using the historical discount to its Australian peers of 9% would see FBU trade on an one-year forward PE of 10.5x. Based on our forecast forward EPS of 64.3cps, applying a 10.5x PE generates a TP of $6.75/share.

[Basil]

Thanks for sharing Craigs view.
FBU has never resonated with me as an opportunity.
Whether its their history of mismanagement of major projects, the bloated management structure and eye watering salaries right down the management structure, the extraordinary level of directors fees or the lack of growth over the years I am not sure but most likely a combination of all of the above.

Zooming out and having a look at the long term is always a good idea because it encapsulates the full breath and depth of the company culture and its relative performance against its peers.

If we go back to 1997, 25 years ago FBU was $4.88 on 30 Sept 1997 and James Hardie was $4.25.
Today FBU in inflation adjusted terms is worth considerably less at $5.46, (the RBNZ inflation calculator is currently offline but surely any reasonable person can see $5.46 now in real terms is a LOT less than $4.88 was 25 years ago) and yet James Hardie is now $36 (8.5 times the price)

In my view comparing some of the Australian building companies that have been well managed and grown substantially over time with FBU that has destroyed shareholders capital is completely inappropriate.

Even if we ignore some of the fiasco's in recent years and take an average of last years earnings, this years expected earnings and the average of analysts expectations for the next two years I get an average earnings of 52 cps.   My argument is this is a pure cyclical and has shown no growth in the last 25 years.  I think the share price performance over that timeframe gives very solid support to my thesis.

If we take the classic time honored Ben Graham no growth PE of 8.5 and apply to the average recent and average analyst forecasted earnings, (keep in mind this average takes out the fiasco's of some recent years so shows FBU in a much more favorable light than an arithmetic average of the last 10 years across the cycle earnings), so taking a sympathetic view to FBU and suggesting most of its problems are behind it apart from the previously alluded too bloated management structure I get a no growth PE of 8.5 times x 52 cps = $4.42

Paying anything more than that is in my opinion paying more for peak cycle earnings and / or paying more for growth that hasn't been proven to be plausible over the long run.  My contention is simply this. FBU is a very good company for the directors, management and other senior employees and provides very poor returns for shareholders,  (after the previously mentioned stakeholders have gorged themselves at the table every year).

I have no regrets about never being a FBU shareholder.  Over the long run its a value destruction company.

[Shareguy]

Agree FBU has a history of wealth destruction and has been a poor performer for so long. Can a leopard change its spots.  There seems to be a lot of analysts that say it's way undervalued.  I guess will see Tom. Will be interesting with STU result coming up.

[Fiordland Moose]

Agree FBU has a history of wealth destruction and has been a poor performer for so long. Can a leopard change its spots.  There seems to be a lot of analysts that say it's way undervalued.  I guess will see Tom. Will be interesting with STU result coming up.

FBU a good payer a fees. Over the years has raised lots of debt, acquisitions and divestments, corporate reviews, the occasional equity raising. I'm sure none of the analysts covering it let that affect their opinions....

I had a bit of fun dabling around with it ~2005-2007 - never looked back since.

[Left Field]

Holders happy. Nice Divvy too.

https://www.nzx.com/announcements/397072

Summary:
- Revenue $8,498 million, up 5% from $8,120 million in FY21
- Net Profit After Tax $432 million, up 42% from $305 million in FY21
- EBIT before significant items $756 million, up 13% from $668 million in FY21
- Return on Funds Employed before significant items 19.3%, compared to 18.8% in FY21
- Cash flows from operations of $592 million, compared to $879 million in FY21
- Fully imputed final dividend 22 cents per share, bringing full-year FY22 dividend to 40 cps
- Completed $274 million total share buyback programme

Fletcher Building chief executive Ross Taylor said: "Fletcher Building delivered strong results in FY22 across all key metrics. Our performance highlighted our ability to deal with a dynamic operating environment, while remaining focused on delivering long-term, sustainable growth.

"Group revenue for the year was $8,498 million compared to $8,120 million in FY21, while EBIT before significant items was $756 million, compared to $668 million in FY21. Group EBIT margin lifted materially in FY22 to 8.9% and we were pleased to deliver a second half margin of 9.5%. Our return on funds employed (ROFE) remained ahead of target at 19.3%.

"Fletcher Building's businesses generated cash flows from operating activities of $592 million. Our balance sheet remains robust with $1.1 billion liquidity and net debt of $670 million at year end. This positions us well as we move into the new financial year and continue to invest in the growth of the business.

"Having delivered a strong earnings and cash flow result, the Board has approved a fully imputed final dividend for the year ended 30 June 2022 of 22.0 cents per share to be paid on 6 October 2022. Combined with the 18.0 cents per share interim dividend, this brings the total dividend to 40.0 cents per share for the FY22 year. In addition, Fletcher Building completed its on-market share buyback programme of $274 million in aggregate.

[Clearasmud]

Divi 22c Very very nice.

[winner (n)]

FBU share price 6 bucks this week  ..... heading to 7 bucks by end of year

The F23 guidance of $100m profit uplift is huge

Normalised EPS of 60 cents .... Craigs say historical PE of 13 ..... that's $7.80 ....plus uplift share price be over 8 bucks by Xmas 23

[Basil]

Peak of the cycle earnings in FY23 is how I see it.

[Shareguy]

Had a brief look this morning. Results were below both Fbar and Craig's on npat. Met guidance on Craig's $53 cps eps. Higher for both on the divi. Forbar had forecasted $35 cps and Craig's $38 cps. Actual was $40 cps.

What was the highlight for me was forecasting $100m increase in ebit fy23.

Looking good for STU result.

[winner (n)]

Had a brief look this morning. Results were below both Fbar and Craig's on npat. Met guidance on Craig's $53 cps eps. Higher for both on the divi. Forbar had forecasted $35 cps and Craig's $38 cps. Actual was $40 cps.

What was the highlight for me was forecasting $100m increase in ebit fy23.

Looking good for STU result.

EPS was 60 cents if you don't count the abnormals (like something to do with transation on reserves)

[Shareguy]

Saying steel business up 40 percent on last year.  Looking very good for a stunner from STU.

[Basil]

EPS was 60 cents if you don't count the abnormals (like something to do with transation on reserves)

Trouble is abnormals are normal for FBU 😜
Good luck with your $9 ramp.  I'm sticking with my view expressed yesterday.

[winner (n)]

Trouble is abnormals are normal for FBU 😜
Good luck with your $9 ramp.  I'm sticking with my view expressed yesterday.

still be 7% divie yield at 9 bucks

That's pretty good .... especially when every man and his dog are saying interest rates are heading down

[Basil]

still be 7% divie yield at 9 bucks

That's pretty good .... especially when every man and his dog are saying interest rates are heading down

AIR divvy was a bit more than that at the peak of its cycle.  What can possibly go wrong with cyclical companies 😜

[winner (n)]

AIR divvy was a bit more than that at the peak of its cycle.  What can possibly go wrong with cyclical companies 😜

Ross will see everybody right - he's eliminated the cyclical nature of their earnings

Must work hard to improve his rem .... $6.6m last year ....more tha $7m next year

Deserves every penny of it I suppose --- looking after shareholders as he does

But one comment in a NBR story is probably how many think about this 'obscene' $6.6m package -


Yep, because it was all about him. No one else could have possibly done this, he did it all alone and the market had nothing to do with it. How absurd.