FBU-Fletcher Building

[winner (n)]

Craig's have just released an updated note as follows

Cantilevered consents
FY23 earnings firm, but activity decline to commence 1H 2023
 In this note we (1) review the most recent consent data for new home builds, (2) refresh our view on the housing market decline given a reasonably fluid demand supply balance, including NZ's current interest rate outlook and RBNZ's Nov-22 'Financial Stability Report', and (3) fold these indicators into our outlook for FBU. Our updated forecasts include a small lift in FY23 EBIT, in line with FBU's ASM messaging, and a cut to FY24/25 EBIT by 5% due to an expected house price decline of 25%, peak to trough (prev. 20%). Our EBIT estimates in FY24/25 are now 10% and 17% below consensus, with our revised Target Price coming out at $5.83 (prev. $6.55). Overweight maintained

So target reduced by 11% but still in favour

Target $5.83 implies current price should becabout $5.20

Not too far off ....all looking for FBU

[Shareguy]

I must admit that I am very tempted to get back in.

[BlackPeter]

I have been watching this but note the historical share price growth has not been very stellar. BP, is this strictly a yield play for you? Do you think this time is different and there will be capital gains to be had as well? I believe a couple of brokers forecast earnings to peak in 2023/2024 and decline somewhat thereafter.

FBU is a cyclical company sitting in the lower two quadrants with amazing PE and earning CAGR. On top of that paying a reasonable dividend (8.6% dividend yield last time I checked) and I expect building activity to continue for some time to come. We still have not enough affordable homes, increasing immigration will take care of the the better homes - and our infrastructure is creaking in all corners.

I recon with a bit of patience holders will get the dividend plus some capital appreciation. Whether this will be in 2 years of 5 years, I don't know, but hey, we are investors, aren't we?

FBU used to be well above $10 per share ... well possible they return one day to these lofty heights.

[winner (n)]

FBU is a cyclical company sitting in the lower two quadrants with amazing PE and earning CAGR. On top of that paying a reasonable dividend (8.6% dividend yield last time I checked) and I expect building activity to continue for some time to come. We still have not enough affordable homes, increasing immigration will take care of the the better homes - and our infrastructure is creaking in all corners.

I recon with a bit of patience holders will get the dividend plus some capital appreciation. Whether this will be in 2 years of 5 years, I don't know, but hey, we are investors, aren't we?

FBU used to be well above $10 per share ... well possible they return one day to these lofty heights.

What are these quadrants You talk about BP

[BlackPeter]

What are these quadrants You talk about BP

Basic maths of cyclical movements.

Here is a picture (from the world of electronics - i.e. ignore the electrical terms around the sinewave). It shows nicely the four quadrants of the cycle ...

You cannot view this attachment.

[winner (n)]

Thanks BP - I think I sort of get it

Suppose you could say the industry FBU play in is cyclical.... boom and bust and all that. FBU sales etc are more of a random walk.

I'd think you'd agree that the industry is currently at or near the top of a cycle .... and guru analysts are forecasting the FBU random walk is going downhill for the next few years (not steep but a gentle slope)

FBU does have a low PE at the moment but cyclicals generally have low PEs (v their history) at the top of the cycle. FBU PE has averaged 13 this century (not counting the negative years) and ranged between 6 and 21

[Shareguy]

I sold  my long held FBU shares last year in disgust of their poor performance. I stated then that "I won't be back"

After discussing with people in the Industry and hearing from current employees decided to have a detailed look.

I'm hearing that the culture under current CEO is far better than it's ever been. A good backlog of work with little concern about the doom and gloom that many are forecasting.

On all metrics it looks undervalued. Debt came in well under what most analysts had forecast. Yes it's a cyclical but at these prices I see value.

I'm back on the register at $5.05. Hopefully this time will be different.

 

[BlackPeter]

Thanks BP - I think I sort of get it

Suppose you could say the industry FBU play in is cyclical.... boom and bust and all that. FBU sales etc are more of a random walk.

I'd think you'd agree that the industry is currently at or near the top of a cycle .... and guru analysts are forecasting the FBU random walk is going downhill for the next few years (not steep but a gentle slope)

FBU does have a low PE at the moment but cyclicals generally have low PEs (v their history) at the top of the cycle. FBU PE has averaged 13 this century (not counting the negative years) and ranged between 6 and 21

Hard to say in which part of the cycle the building industry is.

I guess it depends how this and the following government react to the promised economic downturn. Many wise governments in the past managed to mitigate economic crisis by building infrastructure ... and, while our government debt is comparatively high compared with the past, it is very low compared to (nearly?) all other OECD countries.

We do need lots of infrastructure and I'd rather see us building it. This would be good for FBU (assuming they learned a lesson from the past how to handle big projects). I am an optimist ;

[winner (n)]

James Hardie ASX lowers F23 profit guidance ...share price slumps 13%

Outlook not too bright they say

Sentiment flowed over to FBU ..... back below 5 bucks.

[Recaster]

A look at FBU's last acccounts:

Recast Accounts

[Shareguy]

Thanks for posting

[Shareguy]

James Hardie ASX lowers F23 profit guidance ...share price slumps 13%

Outlook not too bright they say

Sentiment flowed over to FBU ..... back below 5 bucks.

Also Simonds group who are one of the largest house builders needs cash injection. Oh dear

[Shareguy]

Allan Gray buys another 8m.


http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/FBU/402193/383166.pdf

[Shareguy]

Construction pipelines still looking solid
RMC production is a leading indicator for the construction sector, and including cement and aggregates is a significant exposure to Fletcher Building (FBU). RMC volumes have also proven to be a useful guide to FBU's NZ revenue (ex. construction and residential development) growth in the past. Concrete is typically poured at the start of a build and as such can be an early indicator of lower demand for later stage products such as plasterboard and insulation. At its AGM in October, FBU reiterated guidance for NZ$855m EBIT and were confident that volumes would remain solid over the next six to nine months; RMC volumes are broadly supportive of this view. Of the steel distributors, Vulcan Steel (VSL) does not sell reinforcing steel and roofing, and as such is less exposed to construction activity and therefore changes in RMC volumes. The next news flow from FBU, VSL, and Steel and Tube (STU) will be their respective 1H23 results to be reported in February 2023.

[winner (n)]

I note annual production of Ready mixed concrete reached an all time high in Sept quarter (stats nz)

Fletchers must be keeping busy ...