FBU - Fletcher Building

It's been a while since I've updated this thread. The purchase outlined in the prior post ended soon after as the Covid selloff hit us in March 2020. I've always thought that FBU would be worth a medium/longer term hold once they started to recover from some disastrous failures.

Price took some time to recover after the Covid low and since then I've been in and out of FBU with positive results overall.

FBU are due to report tomorrow morning and I've decided to sell half and grab half of the open profit. I have no idea what the news will do to the price. It could be good or it could be bad. The NSW lockdowns have started to impact the construction industry and this will make it difficult for mgt to provide a corporate outlook. The market may react or not. Selling half is a conservative tactic that I use in uncertain times and when market sentiment is bearish.

good luck

i also hold FBU

am currently 15% up

but if a BIG drop am unsure if i will buy the dip

i guess i will read the results first

Fletcher Building announces FY22 half year results and 18cps interim dividend​

Auckland, 16 February 2022: Fletcher Building today announced its results for the first half of
FY22.
➢ Revenue of $4,064 million, up 2% from $3,987 million in HY21
➢ EBIT before significant items of $332 million, up 3% from $323 million in HY21
➢ EBIT margin of 8.2%, up from 8.1% in HY21
➢ Net Profit After Tax of $171 million, up 41% from $121 million in HY21
➢ Solid cash flows partly offset by inventory rebuild and housing investment as flagged
➢ Fully imputed interim dividend of 18 cents per share declared, to be paid on 7 April 2022
➢ Strong 2Q EBIT of $264 million (up 73% on 2Q FY21) and EBIT margin of 11.8%, offsetting
COVID-19 lockdown impact of c. $105 million on 1Q EBIT
➢ FY22 EBIT before significant items expected to be approximately $750 million
Fletcher Building Chief Executive Ross Taylor said: “With improved operational performance and
cost disciplines now embedded across the business, we were able to deliver a strong HY22
performance. This was despite the first quarter being heavily impacted by the up to five weeklong COVID-19 stringent lockdown in New Zealand and local lockdowns in Australia which
impacted EBIT by approximately $105 million.
“Revenue was robust overall at $4,064 million, up 2% on the first half of FY21. Group EBIT before
significant items was $332 million, up 3% from $323 million in the prior period. Group EBIT margin
excluding significant items improved to 8.2% from 8.1%, and Net Earnings of $171 million were
up 41% from $121 million in the prior period.
“Our strong second quarter performance was a particular highlight in this result where the Group
generated EBIT of $264 million, up 73% on the comparative quarter, delivering a strong Group
EBIT margin of 11.8%, indicating strong momentum into the second half.
“Cash flows from operating activities for the half year were $157 million, compared to $424 million
reported in HY21 and reflects flagged investments to rebuild stock in key areas and housing
investment following a busy FY21.
“The Board is pleased to approve a fully imputed FY22 Interim Dividend of 18.0 cents per share
for the six months ended 31 December 2021, to be paid on 7 April 2022.
“Looking ahead, the second half of FY22 is expected to be very solid with our customers and
forward indicators pointing to continuing volumes. With confidence in our operational disciplines
and in covering inflationary costs, we expect our second half EBIT margin to be approximately
9.5% and to deliver FY22 full year EBIT before significant items of approximately $750 million.
Fletcher Building Limited, Private Bag 92114, Auckland 1142, 810 Great South Road, Penrose, Auckland 1061, New Zealand
Based on our experience in Australia with the COVID-19 Omicron variant, we foresee a potential
risk impact on our EBIT in the $25 million to $50 million range.
“As we look beyond this financial year, the Group is very well positioned to drive growth. In our
New Zealand materials and distribution divisions we are investing in increased manufacturing
capacity and driving product and market growth. Our Residential and Development businesses
are well advanced in growing annual sales volumes by circa 500 houses a year which includes
our new Vivid Living retirement offer. In Australia, we continue to drive an innovative suite of
disruptive product offers.
“In our markets, in New Zealand, residential consents have been running ahead of industry
capacity for some time. This has created a backlog of work on top of future consents in the
coming years. This is anecdotally supported by our home builder customers generally now
placing orders for their customers 12 to 18 months in advance. In addition, the infrastructure
sector continues to have a strong growth outlook on the back of committed and planned
government projects. Similarly, in Australia, forecasters are all pointing to ongoing strong growth
across residential, commercial and infrastructure through FY23 and beyond.
“Fletcher Building is in a very strong position; our markets look robust, we expect to not see the
significant impacts of lockdowns to reoccur, we remain on track to further improve EBIT margins
across the Group to 10% in FY23 and importantly, we have a maturing pipeline of investments
that will keep driving growth beyond FY23.
“Finally, I’d like to thank our people for their commitment and resilience during demanding times
that has allowed us to deliver this performance. I would also like to acknowledge all our
customers for their continued support.”


=====================================================================================

DYOR

i hold FBU

will be interesting to compare it to LLC ( which i also hold )

Been occasion here to compare Fletcher Building (FBU) with Cedar Woods (CWP). Cedar Woods marked a 12 months high today which caused me to look at FBU and its chart has also made progress. After a temporary break below its rectangular trading range FBU rallied and a few weeks ago broke out above the 13 months range.

Has already guided as to FY23 EBIT but fully year will be reported 16 August.

Not Held

WEEKLY

FBU resisted the negative trend today and according to Livewire was best performer among the ASX200.
Has been going well since Greg Canavan recced it a few days ago.

Not Held

Trading Halt announced today
Might be an overreaction to this when trading resumes - possibly Friday. I'm not holding yet.
G Canavan considered this matter when recommending the stock recently in his fat tails advisory report:

" Fletcher currently trades on the ASX for around $4.20 per share, a significant discount to my estimate of value.
Clearly, the market is worried about the impact of high interest rates on the business in FY24. On top of that, there is a product defect issue weighing on the price. Earlier this year, Fletcher revealed that there were complaints about a pipe it previously manufactured under its Iplex Australia brand. About 30,000 of these pipes were sold and installed in new homes, around half on the east coast and half in WA.
Out of those 15,000 WA homes, around 1,200 have experienced leaks. An investigation is underway by both Fletcher and regulatory authorities. The results are pending. Fletcher has made a provision of $15 million to repair and/or replace affected pipes and related damage, but the costs of an adverse finding could materially exceed this provision.
So that’s a risk that you need to keep in mind, and I think is a key reason for the share price trading well below an estimate of value .."



Not Held

The story of the burst water pipes has broken on the ABC.

Appears to be a horrific situation. The $15m they are suggesting for repairs will not touch the sides of this disaster. The houses need to be largely rebuilt.

Builder and manufacturer trade blows as pipes burst in newly built homes across Perth​

ABC Radio Perth
/ By Emma Wynne
Posted 4h ago4 hours ago, updated 3h ago3 hours ago

Homes need extensive work to replace the pipes after they burst.(Supplied: Ashley Rozze)
Help keep family & friends informed by sharing this article

Link copied
Major Perth builder BGC is pleading with homeowners affected by bursting pipes not to start legal action as the company grapples with almost seven burst pipe reports a day.

...BGC is in the process of removing the polybutylene water pipes from projects under construction and estimates that the bill for replacing the pipes in all the 11,817 homes the company used it in will come to $700 million, about $60,000 per home.

"You need to rebuild half the home, you're stripping it back to lock-up, which is essentially where you've got a roof on, windows and a door," Mr Gray said.

"It takes six months, and those homeowners have to find somewhere to live, it's an awful situation."

Key points:​

• Pipes in newly-built Perth homes are bursting at a rate of almost seven per day
• Major WA builder BGC says pipes may have to be replaced in almost 12,000 homes in WA
• BGC says the manufacturer of the pipes is at fault, maker blames faulty installation

basilio said:

The story of the burst water pipes has broken on the ABC.

Appears to be a horrific situation. The $15m they are suggesting for repairs will not touch the sides of this disaster. The houses need to be largely rebuilt.

Builder and manufacturer trade blows as pipes burst in newly built homes across Perth​

ABC Radio Perth
/ By Emma Wynne
Posted 4h ago4 hours ago, updated 3h ago3 hours ago
View attachment 163930
Homes need extensive work to replace the pipes after they burst.(Supplied: Ashley Rozze)
Help keep family & friends informed by sharing this article

Link copied
Major Perth builder BGC is pleading with homeowners affected by bursting pipes not to start legal action as the company grapples with almost seven burst pipe reports a day.

...BGC is in the process of removing the polybutylene water pipes from projects under construction and estimates that the bill for replacing the pipes in all the 11,817 homes the company used it in will come to $700 million, about $60,000 per home.

"You need to rebuild half the home, you're stripping it back to lock-up, which is essentially where you've got a roof on, windows and a door," Mr Gray said.

"It takes six months, and those homeowners have to find somewhere to live, it's an awful situation."

Key points:​

• Pipes in newly-built Perth homes are bursting at a rate of almost seven per day
• Major WA builder BGC says pipes may have to be replaced in almost 12,000 homes in WA
• BGC says the manufacturer of the pipes is at fault, maker blames faulty installation

Builder and manufacturer trade blows as pipes burst in newly built homes across Perth

Major Perth builder BGC is pleading with homeowners affected by bursting pipes not to start legal action as the company grapples with almost seven burst pipe reports a day.

www.abc.net.au

Click to expand...

i hold FBU

it will be interesting to watch for similar pipe failures on the Australia East Coast (NZ as well )

as much as 7 failures a day ( before the news becomes public )should trigger some other questions ( like was there a cover-up in certain areas )

now i wasn't in WA for long when i was there , but WA didn't strike me as suffering from extreme cold spells ( causing pipes/water to freeze ) so other causes include high water pressure and or very hot water ( last i heard Australian hot water facilities are temperature limited , so as to reduce scalding and major burns , especially to young children )

now i have always been a fan of COPPER pipes for hot water , but maybe recent construction codes have changed

but as a FBU holder... do i add in the dip , wait , or dump the holding ( rhetorical question )

***
"Back in 2017, Iplex changed an ingredient in the pipe. The ingredient is called a resin and it's basically the core thing that the pipe is made of," Mr Gray said.

"[It was changed] to a resin called TYPLEX-1050 out of Korea, and that is the telltale sign that there is a problem with the pipe." ***

the questions just multiply

This story is getting darker and darker. I think Fletcher management are in grave danger of being sued for gross negligence for using the Polybutelene piping.

This is not a " oops, surprise ! " situation. Absolutely no way.. The catastrophic deficiencies of this product were well known in the US and resulted in huge legal issues in the 1990's. The product has been banned ever since in the US. (So why not in Australia ?)

So why in Gods name was such a critical inherently faulty product brought into production ?
Check out this story.

How to Identify Polybutylene Pipes, Lawsuits, & Replacement​

Hmm, sounds like Fletcher Building (FBU) could be back to bourse trading today, although the announcement is a bit ambiguous? FBU has released a robust looking rebuttal.
Says no cases of plumbing pipes failure outside Perth and evidence is suggesting installation failure by the contractor BGC is the cause. Says nation wide recall is completely unwarranted. Fletcher has had expert appraisers in.

Not Held

finicky said:

Hmm, sounds like Fletcher Building (FBU) could be back to bourse trading today, although the announcement is a bit ambiguous? FBU has released a robust looking rebuttal.
Says no cases of plumbing pipes failure outside Perth and evidence is suggesting installation failure by the contractor BGC is the cause. Says nation wide recall is completely unwarranted. Fletcher has had expert appraisers in.

Not Held

View attachment 164115

Click to expand...

a rebuttal yes , but from my understanding of the installation procedure , i wonder what is the over all cost advantage of that product

did they diminish the lawsuit damage but neuter that product

even allowing that the piping was often badly installed ( currently being hotly discussed ) would you still install a product with a proven record of reduced resilience ( galvanized iron and copper pipes normally last for decades with minimal problems , those pesky black poly pipes as well if you buy the thick ones

@divs4ever I was considering a small buy but since I know nothing of plumbing and there is still controversy among commenters I am letting it go. Might be an excellent buy, trading below book value and has been paying strong divs, plus a business with strong demand I'd imagine.
Edit: I don't think it matters if their piping product loses custom, I don't think the manufacture of it is a significant part of their total business. It might even have been discontinued.

on thinking about the product failures ( even if it was shoddy installation ) is that suitable for use with fluids even under modest pressures

starting to sound like it is more suited for a protective shell for electrical/electronic wiring ( keep the water reliably OUT )

if THAT is the case , does that bring new issues to the FBU doorstep( faulty recommendations for applications of the product )

i hold

( am starting to get a headache over this and the potential consequences )

as a holder since 2017 ( averaging down on the way )

divs. since i bought in ( no divs. aid in 2018 )



it has been a bumpy ride ( and no franking credits either )


gee what price if i decide to add more am not so tempted above $4 , do i see if $3.75 or even $3.50 are likely

( bearing in mind this has skipped divs in the past ( while i have been holding )

I find it amazing that the extensive history of the product in the US (see previous posts) is being ignored by FBU. For FBU's sake I hope they lawyered up. I can understand their refusal to consider a blanket recall. It would cost a packet. But it seems as if these pipes are already failing at critical levels and at the best have a 10-15 year life ahead of them. That seems unacceptable for a critical home component that is buried in the bowels of the building.

I agree Divs. I am having some concerns about renovations in my home as well.

basilio said:

I agree Divs. I am having some concerns about renovations in my home as well.

Click to expand...

having been on the receiving end of water damage in a home ( not from a damaged pipe initially , but later there was some failures occurred bad installation at the joints ) and being in a hotel for 3 years ( at the insurance company expense ) i have seen how simple repairs can unravel a list of horrors

now for a while ( previously ) having resided on a rural property i have seen the black ( THICK ) poly pipe resist agricultural use for years ( you can drive a tractor/small bulldozer over it repeatedly ( provided it is buried in the ground ) this FBU stuff failing under household( and unit building) pressures , AND more than ten years of history , maybe they should have stopped recommending for plumbing tasks , BTW is this stuff heat-resistant/flame proof

I hope that Cedar Woods (CWP) builders don't use the stuff.
Market obviously not concerned about CWP so far

finicky said:

I hope that Cedar Woods (CWP) builders don't use the stuff.
Market obviously not concerned about CWP so far

Click to expand...

and RWC, REC, GUD ...?

finicky said:

I hope that Cedar Woods (CWP) builders don't use the stuff.
Market obviously not concerned about CWP so far

Click to expand...

an interesting concern that

( i hold CWP as well , and near-term would be more likely to add CWP over FBU )

might be worthwhile stocking up on popcorn

( i also hold FRI , which operates a fair bit in WA )

i suppose the NEXT question is ... is this issue widespread in WA or across Australia and NZ maybe WA climate is the tipping point ( if not an installer issue )