ASX:FBU
Fletcher Building Ltd
Investment Summary
The fund managers believe that Fletcher Building Ltd’s recent performance reflects ongoing challenges in the New Zealand economy, particularly with a -10% return as housing construction remains very weak. In their opinion, the company’s announcement regarding its subsidiary, Iplex Pipeline Australia, is significant as it addresses plumbing issues related to Iplex Pro-Fit pipes, with a projected pre-tax provision of A$155m for FY25. They view this agreement with the WA Government as a positive development that brings clarity to total costs after extensive negotiations. The fund managers note that a potential agreement with BGC, responsible for 65% of installations, could further mitigate Iplex's costs. Moreover, the recent equity raise and sale of Tradelink show the company's efforts to de-lever, and they perceive that the macroeconomic situation may be nearing a bottom, which could support future growth. Trading at approximately 5-6x EV/EBITA, they suggest that any cyclical rebound could enhance the company's prospects.
Commentary From The Managers
Spheria Asset Management
31 Dec 2024
$2.55
- Fletcher Building (FBU.ASX) experienced a -10% return for the month amidst ongoing recession in the NZ economy.
- Housing construction remains extremely weak, impacting the overall performance.
- In November, a significant announcement was made regarding a settlement between Fletcher Building’s Iplex Pipeline Australia and the WA Government concerning plumbing issues with Iplex Pro-Fit pipes.
- Iplex is anticipated to report a pre-tax provision of A$155m in its FY25 financial statements due to these issues.
- If BGC, the homebuilder responsible for 65% of installations, agrees to participate in the Industry Response, direct costs for Iplex may significantly decrease.
- This announcement provides much-needed clarity on total costs, following over a year of discussions with the WA government.
- Fletcher Building has de-levered through an equity raise and the sale of Tradelink, positioning itself strategically.
- The macroeconomic situation appears to be near the bottom, with potential for cyclical rebound supporting business growth.
- Fletcher Building is currently valued at 5-6x EV/EBITA through the cycle.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.