Fletcher Building (FBU) stock is jumping around by 20-30 cents a day.
Currently trading at $6.48, FBU is down more than 50 percent on its 12 month high, carrying the burden of selling pressure from the Northern Hemisphere as well as New Zealand housing market cyclical pressures such as the slowdown in residential construction; what’s happening in the US and Australia.
“Until we get a big picture turning point; and who knows whether that’s a month away or 6 months away or even further, the volatility will remain,” said Rob Mercer, building analyst at Forsyth Barr, who have the stock valued at $12.41.
“We’ve gone through a major correction in the market. Building is typically one of the more liquid stocks – it has the greatest volatility, and tends to go down by a lot more than the market, and tends to bounce more as well.”
“The question really is: what point will the market come back and support the value proposition here? We’ve picked at $6.10, you would hope that would be low enough for people to see deep value but who knows.”
The outlook for Fletcher? “They’re pretty well balanced,” believes Mr Mercer. But the ultimate test is going to be activity, and Mercer expects housing to fall between 10 and 15 percent over the next 12 months. On the commercial side however, it looks a lot more positive in terms of buildings backlog – which is about twice what the level was this time last year at $1.2-1.5 billion. “There’s a substantial amount of major projects in rail, dairy, electricity, electricity transmission, oil and gas, water, roading; there’s a pipeline of projects that will be coming on stream late 2009-2010 for the World Cup year,” stated Mr Mercer.