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Fletcher Building Limited, undertaking initiatives to improve operating discipline

Team Veye | 23 Feb 2021 ASX - FBU
Fletcher Building Limited, undertaking initiatives to improve operating discipline

Fletcher Building Limited (ASX: FBU)

Fletcher Building limited (ASX: FBU) on 17 February 2021 announced its results for the first half of FY21.

The company witnessed a broadly stable market environment. Growth in the New Zealand residential sector has been offset by softer demand in Commercial and mixed conditions in infrastructure in both New Zealand and Australia. The sustainable improvement in margins was achieved through pricing disciplines; targeted share gains; consolidation and automation of manufacturing and supply chains; and a more efficient overhead cost base.

(Chart source: TradingView)

Growth in the New Zealand residential sector has been offset by softer demand in Commercial and mixed conditions in infrastructure in both New Zealand and Australia

Financial Highlights:

  • Group revenue was up by 1% on HY20 to $3,987 million
  • EBIT before significant items was up by 47% to $323 million, from $219 million and slightly ahead of the HY21 guidance range of $305 to $320 million
  • Group cash flows from operating activities of $428 million were significantly higher than the $5 million outflow in the prior period, resulting from a higher EBIT and a material improvement in working capital.
  • Net Profit After Tax was up by 48% to $121 million, from $82 million in HY20
  • Group EBIT margins improved to 8.1% from 5.5%, with improvement across all operating divisions
  • Declared an interim dividend of 12 cents per share.
  • The Group now has $1,812 million in available funding, of which $925 million is undrawn, and $618 million cash on hand.
  • The Group’s liquidity is $1.5 billion.
  • Net interest expense for the Group was $56 million in the period, of which $33 million was related to lease expenses.
  • The Group’s funding costs for the period decreased by 34% to $23 million, resulting principally from lower debt levels following the repayment of $755 million of debt since June 2020
  • Capital expenditure of $82 million in HY21 was in line with previously signalled levels and included $31 million for the new Winstone Wallboards facility.
  • The Group’s balance sheet and funding profile remains strong
  • Overall, market factors – volume, share and price – contributed 15% of the Group’s increased EBIT while around 85% was the result of strategic improvements in operating efficiency.
  • Significant items of $86 million in the period comprised $35 million for the final phase of the Group’s restructuring activities being undertaken in FY21, and $51 million for impairment to the carrying value of the Rocla business in Australia, which is currently being divested.
  • FY21 EBIT before significant items guidance range $610 million to $660 million (Data Source – Company Reports)

 

Veye’s Take

Business performance in the second half of FY21 is expected to be driven by a continuation of the improved operating disciplines and efficiencies delivered in the first half. The Company’s cost-out programme is largely complete, with gross benefits expected to be broadly stable between the first half and second half of the year. Demand for new houses in New Zealand is expected to remain robust. The stock has managed to hold above the middle band of the Bollinger. The strong RSI and MACD support the overall bullish momentum with minor dips. The stock is expected to maintain the upside momentum in the near term. The Latest "Buy" on “Fletcher Building Limited” at the price of $3.50 was given on 22 September 2020. It has already grown by more than 68% in just five months till now. Veye maintains a "Hold" on “Fletcher Building Limited” at the current price of $5.89

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