Equities
Vince Pezzullo

Fletcher Building is a diversified building materials and construction company operating in over 40 countries. The company is currently simplifying its business through the divestment of Formica. Post the sale, the business will be more focussed across Australia and New Zealand, with over 85% of its profitability coming from New Zealand where the company enjoys strong positions in manufacturing and distribution of building and construction materials. Its Australian businesses have a weaker market position. 

Despite a favourable macro backdrop in New Zealand, the past 2 years have been a difficult time for the company. Significant losses in the construction business have been reported and resulted in management changes and a capital raising. Whilst risks of further significant project losses cannot be ruled out, we believe the market is capitalizing these losses that are arguably more “one-off” in nature. 

Post the sale of Formica, we see the opportunity for the CEO to be more focussed on improving margins in New Zealand and improving performance in Australia. We believe that simplifying the business to be more New Zealand centric with strong market positions and a strong balance sheet should see significant upside realised.

As at 31 March, the portfolio allocation to Fletcher Building Limited was 2.8%. 

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