Fletcher Building Earnings: Forecast Downgrade Due to Weak Residential Sector

We maintain our fair value estimate for no-moat Fletcher Building at NZD 6.00 per share. We modestly lift our fair value estimate for shares listed on the Australian Securities Exchange to AUD 5.70 based on the current New Zealand/Australia exchange rate. Fletcher reported first-half fiscal 2024 EBIT of NZD 264 million and downgraded full-year earnings guidance. Consequently, we cut our fiscal 2024 operating earnings forecast by one fifth to NZD 580 million, about the midpoint of management’s updated guidance. The operating environment will continue to be challenging over the remainder of the fiscal year with a contraction in new house builds and renovations weighing on volumes and margins. However, we expect a gradual recovery in the residential sector from fiscal 2025 and our mid- to long-term forecasts are largely unchanged.