NZ Building Sector and the dimming effervescence - Stocks under spotlight


  • New Zealand experienced significant decline in construction activity during March quarter
  • FBU records operating EBIT loss of ~$55 million in April due to lockdown restrictions
  • FBU has decided to cancel FY20 interim dividend payment

The country’s construction sector has witnessed negative impacts due to the lockdown implemented to contain the COVID-19 spread. As per Stats NZ, the total building volume declined a seasonally adjusted 5.7%, after a 0.9% decline in the December 2019 quarter. The residential building volume decreased a seasonally adjusted 5.8%, after a 1.3 per cent increase in the December 2019 quarter. Non-residential building volume decreased a seasonally adjusted 5.6%, after a 3.8% decline in the December 2019 quarter.

In value terms, the actual value of total building work was $5.9 billion in the March 2020 quarter, down 4.2% from the March 2019 quarter.

Key Data (Source: Stats NZ)

Key Data (Source: Stats NZ)

Fletcher Building Limited (NZX: FBU)

FBU’s Measures to Respond to COVID-19

As per the company’s executive, Ross Taylor, there has been a significant impact of lockdown in the past couple of months, mainly in New Zealand. In NZ, all operations were closed throughout Alert Level 4, except for minor parts of Construction and Distribution categories. These were requested to offer essential services.

Notably, the company closed more than 400 operating sites at the end of March 2020.

FBU Reports Loss in Month of April

The company recorded operating EBIT loss of about $55 million in the month of April as there was no revenue from most of NZ operations and Australia revenues were running at around 90% of pre-COVID-19 expectations. The result consisted of ~$55 Mn loss in NZ as well as a breakeven result (approximately) in Australia. The costs incurred during the period were primarily related to employee costs, and about 90% of NZ employees were placed on the company’s Bridging Pay Programme.

Market Outlook

COVID-19 had a significant impact on the company’s markets in both Australia and New Zealand. There is a lot of uncertainty over the economic outlook and the company is expecting that coronavirus would lead to a significant downturn in FY 2021 and potentially beyond. For the next financial year, FBU is preparing for an environment that would witness a significantly reduced customer demand across all businesses, shrinking economy as well as sustained lower productivity levels.

Financial Position and Capex Guidance

For the fourth quarter of FY20, the company has reduced its capex guidance by about $60 million, which means, for FY20, the total expenditure is now expected to be $240 million, compared to a pre-COVID-19 expectation of about $300 million.

For FY21, FBU expects its core capex to be in between $125 Mn to $150 Mn, concentrating on only the highly important investments in maintenance, safety, as well as crucial strategic initiatives.

As at 30 April, the company’s (unaudited) net debt stood at ~$650 Mn and its leverage ratio was 0.8 times. At 30th April, the company had cash on hand (unaudited) of $970 Mn and undrawn credit lines of $525 Mn, resulting in total liquidity of ~$1.5 Bn. Notably, average maturity of FBU’s debt facilities is 3.7 years.

Dividend Update

The company has decided to cancel the FY20 interim dividend and FBU has also suspended its on-market share buyback programme. There will be a material impact of COVID-19 on the company’s operations and its FY20 financial results. Because of this reason, the company has withdrawn its FY20 EBIT guidance.

Stock Performance

The stock of FBU closed the day’s trading at NZ$4.07 per share on 8th June 2020, up by 2.01% on an intraday basis. The stock’s 52-week high and low is $5.700 and $3.050, respectively. Notably, the stock price of the company has fallen by 14.22% in the time frame of past 3 months.

Metro Performance Glass Limited (NZX: MPG)

MPG Reopens NZ Operations

When the country moved to Alert Level 3, the company’s four NZ manufacturing sites resumed their operations and all the Metro Direct branches throughout the country reopened. For FY20, the company expects EBIT to be at the lower range of $21 million to $24 million.

MPG Reports Marginal Decline in Revenue

In 1HFY20, MPG’s performance was slightly behind the same period last year, primarily because of variable customer demand levels as well as increased competition in upper North Island of New Zealand and Victoria, Australia. MPG posted revenue of $136.7 Mn, down by 3% as compared to pcp. In NZ, MPG has been experiencing an increasingly competitive market and there are variable levels of construction activity.

Revenue decreased by 3% because of softness in Auckland residential window fabricator as well as merchant segments in particular. In Australia, the company is implementing a state-by-state plan to improve Australian Glass Group’s (AGG) financial as well as operational performance.

1HFY20 Group Revenue (Source: Company Reports)

1HFY20 Group Revenue (Source: Company Reports)

Stock Performance

The stock of MPG closed the day’s trading at NZ$0.235 per share on 8th June 2020. The stock’s 52-week high and low is $0.435 and $0.150, respectively. The stock of the company has witnessed a rise of 41.17% in the span of one month.

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