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Craigs downgrades Fletcher on slow Canterbury rebuild

Fletcher Building, which holds the mandate managing the Earthquake Commission's repair programme in Christchurch, faces the prospect of sharply lower earnings than previously forecast because of a slower Canterbury rebuild, according to an analyst report.

Research and broking house Craigs Investment Partners expects Fletcher will reap just $33 million in earnings before interest and tax from the Canterbury rebuild in the 2015 financial year, having previously estimated an ebit contribution of as much as $91 million, according to the May 6 report. The rebuild will likely make up about 5.8 percent of Fletcher's annual ebit between 2014 and 2017, down from a forecast 10.2 percent.

"Given the size and scope of the rebuild, we believe it is more realistic to factor in delays at this stage," the report said. Craigs downgraded the stock to a 'hold' with a price target of $9.95, from a previous 'buy' recommendation with a $10.77 price target.

Fletcher shares rose 0.4 percent to $9.34 in morning trading, paring some of yesterday's 2.7 percent decline. The stock has gained 9.3 percent this year.

Mark Lister, head of private wealth research at Craigs, told BusinessDesk the construction company has had "a good run this year" on an improving economic outlook and expectations for the Canterbury rebuild.

"Our Sydney-based analyst pulled it back to a 'hold' partly on the basis the shares have had a reasonably good uplift over the last few months," Lister said. "It's not to say we're getting negative. It's just a look at the value gap that has closed somewhat."

New Zealand's second-biggest city was devastated by a series of earthquakes in 2010 and 2011, leaving an estimated $40 billion bill to rebuild Christchurch. The reconstruction effort has started to gain momentum this year, though a survey of senior leaders in the city this year showed growing impatience with delays and concerns over the management and procurement of major projects.

The Craigs report also warned of potential structural issues Fletcher faces in its Australian businesses, which account for about half the group's earnings, including the end of the Australian federal government's subsidy on retrofitting insulation. Earlier this year Fletcher described Australian conditions as soft.

(BusinessDesk)

Comments and questions
2

Christchurch CBD is not going to be rebuilt in a hurry. Market forces dictate, rather than politicians grand ideas.

The process is likely to take 2 to 3 decades, perhaps longer. A large scale mixed use development, incorporating a significant shopping mall, with outside opening cafes would be a catalyst. The $300 per week rentals being paid for containers would support apartment accommodation above.

Offices will have to come later, when existing leases expire and new developments are not surrounded by construction zones.

Government and local government should only commit what they can afford. Staged development, rather than the full blown monty. Financial economic based, rather than monuments to current politicians and they lobbying interests.

If it were possible to get politics out of the rebuild (which I doubt) things would proceed faster!
paleo