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Fletcher Building Limited (ASX:FBU), one of New Zealand’s largest construction and building materials companies, continues to face pressure as analysts at Macquarie have lowered the company’s price target. The ongoing issues with defective pipes supplied by its Iplex Pipelines Australia division have weighed heavily on the stock, prompting Macquarie to take a more cautious view of the company’s financial outlook.
Price Target Lowered, "Underperform" Rating Retained
Macquarie analysts have cut their price target for Fletcher Building to NZ$2.21 from a previous target of NZ$2.43, maintaining their “underperform” rating on the stock. The downgrade reflects concerns over the company’s ongoing liabilities related to plumbing issues in Western Australian homes, which have damaged the company’s financial standing and market sentiment.
The decision to lower the price target comes as Fletcher’s share price continues its downward trajectory, further exacerbated by investor concerns over the company’s exposure to additional costs linked to resolving the defective plumbing products.
Iplex Pro-Fit Pipes Settlement Adds to Contingent Liabilities
In August, Fletcher Building confirmed that its Australian subsidiary, Iplex Pipelines Australia, had agreed to address plumbing issues in homes across Western Australia that were built using its Pro-fit pipes. The defective pipes have caused significant water leaks and structural damage, leading to widespread customer complaints and the need for remediation.
Macquarie’s report highlighted the financial implications of the settlement, with the firm lifting its contingent liability estimate for Fletcher Building by NZ$187 million (US$115.40 million). This increase reflects the proposed settlement amount, which will cover the costs of fixing the faulty pipes and compensate affected homeowners.
The financial hit from the settlement has raised concerns about Fletcher’s ability to absorb such a large cost and continue its operations without further impacting profitability. The increased liabilities come at a time when the company is already grappling with a challenging construction environment in both New Zealand and Australia.
Stock Struggles as Shares Drop Further
Following the Macquarie downgrade, Fletcher Building shares dropped by 0.7% to NZ$2.81 in recent trading. The stock has struggled throughout 2024, losing 41.2% of its value year-to-date as of 0420 GMT. The steep decline has made Fletcher one of the worst-performing stocks on the NZX this year.
The company’s ongoing legal and financial troubles related to the Iplex Pro-fit pipes issue, combined with broader market pressures in the construction sector, have contributed to the sharp drop in its share price. Rising construction costs, supply chain disruptions, and regulatory challenges have also played a role in hampering the company’s ability to rebound from its current slump.
