Fletcher Building Limited

This report is an updated version of the report published on the 18 August 2022 at 3:55 PM GMT

Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Fletcher Building Limited (ASX: FBU) manufactures and distributes building materials for residential and commercial construction. The company operates through various divisions such as building products, distribution, concrete, Australia, residential & development, and construction.

 1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~26.07% of the total shareholding. Allan Gray Australia Pty Ltd. and The Vanguard Group, inc. are holding a maximum stake in the company at ~5.03% and ~3.99%, respectively.

1.4 Key Metrics: The company has improved its efficiency by achieving a gross income of NZD 2,509mn in FY22, above FY21, which was NZD 2,342mn. Additionally, the company reported an EBIT margin in 2HFY22 of 9.5%, which resulted in an over group EBIT margin of about 8.9% in FY22.

Section 2: Financial Highlights, Long-Term Stratigies and Dividend History

2.1 Results Highlights of FY22: The recent FY22 results depicted EBIT before significant items of NZD 756mn relative to NZD 668mn in FY21. Return on Funds Employed before significant items of 19.3% in FY21 relative to 18.8% in FY21.

2.2 FBU Medium and Long-term Strategy: The company continued to grow and rebalance its order book to generate a better return and improve its risk profile.

2.3 Dividend History: FBU shows a clear track record of paying a dividend to shareholders. The group issued a dividend of NZD 22 cents per share (cps), bringing the full-year FY22 dividend to NZD 40cps.

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

4.2 Fundamental Valuation

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is August 18, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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