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Fletcher Building share price charges higher on asset sale and dividend reinstatement

The Australian share market may be sinking notably lower today, but the same cannot be said for the Fletcher Building Limited (ASX: FBU) share price.

In early trade the building supplies company’s shares are up 4% to $4.76.

Why is the Fletcher Building share price pushing higher today?

This morning Fletcher Building announced that it has entered into an agreement to sell the Formica Group to Broadview Holding BV for a sale price of US$840 million (NZ$1,226 million), subject to approvals.

Fletcher Building’s CEO, Ross Taylor, explained that the sale is part of the company’s strategy to exit non-core businesses. Just last month the company completed the sale of its Roof Tiles Group business to Canadian roofing company IKO for US$39 million.

Mr Taylor said: “Our five year strategy is to refocus Fletcher Building’s capital and capability behind our New Zealand and Australian businesses, with building products and distribution at our core.”

What now?

Mr Taylor revealed that the company intends to use the sale proceeds to strengthen its balance sheet and reinstate its dividend in FY 2019.

The first dividend is expected to be declared upon the finalisation of the company’s half-year results on February 20 2019 and reflects management’s confidence in its trajectory and return to profitability in FY 2019.

However, the board intends to size the dividend prudently, having regard to the ongoing capital requirements of the company. In addition to this, due to the timing of the Formica sale, the FY 2019 dividend is likely to be weighted towards the final dividend.

Should you invest?

I think this was a good move by management and can’t say I’m surprised to see its shares push higher, especially given the reinstatement of its dividend and return to profitability.

At just 10x estimated FY 2019 earnings I think Fletcher Building is attractively priced right now and worth considering alongside fellow materials sector peers BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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