Wednesday, August 8, 2007

Fletcher Building : A solid foundation for the future

Fletcher Building Ltd's [FBU.NZ] results today were solid and as expected.

The after tax profit of $NZ 484 Million Dollars represents an increase of 28% over 2006 and excluding abnormals $399 M , representing an increase of 5% over last years $379 M.

All divisions showed strong growth except building products and steel and total revenue increased 7% to almost 6 Billion.

The recent purchase of the Formica Corporation looks to add to the strong showing in coming years, that Fletcher expects from their laminates and panels division which this year showed excellent growth.

The current slowdown in housing will affect FBUs' profit growth over the next few years, as wasteful Government spending comes home to roost with the resultant effects of high interest rates meaning less spending on house renovations and new home building.

Other Fletcher divisions look likely to help bolster profit going forward though.

Infrastructure spending on New Zealand roads, public transport and the Auckland Football Stadium are set to help FBU smooth out probable drops in other areas. With little sign of infrastructure spending showing a slowdown this division will likely be the star over the next 2-3 years.

Commercial construction will also likely take up some of the slack left by lower housing starts.

The general election will have a material effect on profit for Jonathan Ling and his management. It is likely that a probable National Government in 2008 will allow more Kiwis to keep their own money due to lower taxes and this will clearly stimulate a tired and crumbling economy.

Management have been diligent in keeping costs down while helping allay possible divisional downturns by broadening Fletcher's focus. With a now larger footprint offshore and a more multifaceted local offering FBU will be able to smooth out the normal economic cycles that the building sector has.

The outlook for the coming year profit wise looks good for a moderate increase barring any major meltdown of the global economy.

FBU shares were down by more than 3% today.


Disclosure: I own FBU shares

Fletcher Building @ Share Investor

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Related Reading

Fletcher Building History - Auckland University

Flecher Building Financials


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c Share Investor 2007