Tuesday, July 14, 2009

Fletcher Building's Commercial arm keeps their head above the tunnel

Fletcher Building Ltd [FBU.NZ] getting a large part of the NZ$406 million contract to build the road tunnel under Victoria Park in Auckland is not only evidence of their dominance in contracting in this part of the world, it is an indication of its underlying strength in the recession hit market.

That underlying strength lay in the ability of the company to fall back on its commercial/infrastructural arm while its residential building group has been hit by the big slowdown in the residential building sector.

Not only does this Auckland roading project provide revenue from actually building the tunnel but it also provides revenue for Fletcher's add-on divisions. Concrete, steel, aggregates and more can be provided from FBU's various businesses.

There is more of this infrastructure building to come. Stadiums around the country are being built or refurbished in time for the 2011 World Cup and Fletchers will probably have a hand in somewhere building most of them.

The other road tunnel to be built, in the Waterview part of Auckland, will also no doubt get FBU input somewhere.

The company is one of a few large enough the ability and infrastructure themselves to be able to build these sorts of large projects and Fletcher stand above most when it comes to the tender process.

They are big, have the expertise, knowledge and relationships and that will help them through the next few recession hit years.

Shareholders just need to be patient.

Disc: I own a small FBU holding in the Share Investor Portfolio

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Project Management in Construction (McGraw-Hill Professional Engineering)

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c Share Investor 2009