The Fletcher Building Limited (ASX: FBU) share price looks set to open flat after it delivered a robust half-year earnings result to defy the ongoing headwinds in the real estate and construction sectors.
What happened in the first half for Fletcher?
Fletcher’s total revenue fell 3% lower to NZ$4.75 billion while earnings before interest and tax (EBIT) returned to the black at NZ$275 million for the half after last year’s NZ$322 million loss.
It was a similar story with the company’s net profit after tax (NPAT) which came in at NZ$89 million (NZ$160 million on an underlying basis), up from a NZ$273 million loss in 1H18 on both a statutory and underlying basis.
The good news for shareholders was that earnings per share (EPS) of 10.4 cents per share (cps) saw management declare an unfranked 8 cps dividend, having not paid out a dividend in 1H18.
Despite the broadly resilient result, challenges remain for Fletcher in particular business segments. Revenue from Construction (-13%), Residential and Development (-5%) and Building Products (-4%) all fell in a reflection of the difficult economic conditions facing those sectors in Australia and New Zealand.
The Residential business grew house sale volumes and revenue compared to prior corresponding period, but the lagging nature of results mean I would expect to see this impact Fletcher’s full-year earnings more so than the interim results.
On the cash flow front, Fletcher reported negative cash flow from operations of NZ$114 million, down from NZ$110 million in positive cash flow in 1H18.
The company’s gearing ratio continues to be volatile, decreasing from 39.1% on 1H18 numbers but up from 23.5% in FY18. The company has turned around its profitability, with return on average equity coming in at 4.4% in 1H19, compared to a -6.1% return in 1H18, while the ROE before significant items was at 9.6% for the half year.
I would expect to see the Fletcher Building share price rise on the half-year results release this morning. The company has exposure to many sectors that are reliant on the Australian and New Zealand property markets, and while I think FY19 results could be hit hard by an ongoing downturn, today’s results look good for Fletcher.
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