The company has updated guidance at its AGM, revising FY19 operating earnings (EBIT) down to NZ$630-680m, which is a -6.5% reduction on Morgan Stanley’s forecasts. This highlights the probability that internal problems will prevent the company from maximising profits at the top of the cycle. The Golden Bay facility closure during September was a one-off but Morgan Stanley was surprised this was the first the market heard about it.
Australian concerns feature more significantly, as cost pressures in a cooling residential market are driving lower expectations. The broker was again surprised, as construction activity remains robust. The broker fears a full Australian housing downturn, particularly if it coincides with an NZ housing decline.
Equal-weight rating maintained. Target is reduced to $5.66 from $6.36. Cautious industry view.
Target price is $5.66.Current Price is $4.48. Difference: $1.18 – (brackets indicate current price is over target). If FBU meets the Morgan Stanley target it will return approximately 21% (excluding dividends, fees and charges – negative figures indicate an expected loss).