Fletcher Building share volatility continues

LAURA WALTERS
Last updated 11:41 08/05/2013

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Fletcher Building's share price has bounced back after taking a hit on Friday due to the weaker-than-expected Australian economy affecting the company's outlook.

The country's biggest construction firm was trading at $8.42 this morning, down 0.2 per cent, after yesterday's 3.7 per cent rise.

The company suffered a 6.5 per cent (56 cent) drop in its share price on Friday to trade at $8.03.

Craigs Investment Partners head of wealth research Mark Lister said the shares dropped in the wake of a presentation to an Australian investor conference last week, which showed Fletcher's programme for cost savings would not save it as much money as first thought.

Fletcher's sales were down 3 per cent for the six months to December 2012, according to Thursday's investors' presentation.

Fletcher's net earnings rose only 1 per cent during the second half of 2012. The company saw a drop in earnings before interest and tax in its distribution and building products components.

The report said it expected the downturn in residential and commercial construction in Australia to continue.

The Australian economy generally is flat. Retail sales fell 0.4 per cent in March seasonally adjusted, compared to economists' expectations of a 0.1 per cent rise.

This followed a slide in job advertisements for the second consecutive month and subdued inflation.

Yesterday the Reserve Bank of Australia cut the official cash rate by 25 basis points to 2.75 per cent, the lowest level since the central bank began setting rates in 1990 and the lowest level since 1959.

Lister said it was apparent the analysts who followed the company and forecast its earnings and profit were too optimistic about how things were going.

However, he said Friday's sell-off was overdone, and it gave buyers an opportunity as the price fell to the $8 mark.

While Fletcher would always be a volatile stock because of its reliance on the construction sector and the housing market, which is still a bit soft in parts of New Zealand and Australia, now was a good time to buy, Lister said.

The company had the benefits of the Christchurch rebuild to look forward to, housing markets would pick up over the medium term, and yesterday's Australian Reserve Bank interest rate cut would help mortgage holders and consumers, he said.

For the six months ending December, Australia accounted for 40 per cent of the company's earnings before interest and tax, 43 per cent of revenues, and was home to 22 per cent of Fletcher Building's shareholders.

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- BusinessDay.co.nz

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