Fletcher Building Limited (ASX: FBU) has announced the completion of the Formica sale which was announced in December 2018. Here’s what you need to know.
About Formica
Fletcher Building is one of New Zealand’s largest businesses. It is a manufacturer, home builder, and partner on major construction and infrastructure projects. Some of its divisions include Building Products, Distribution, Concrete, Steel, Residential and Land Development and Construction.
Sale Completed Early
Formica was the division of Fletcher Building that covered the North America, Asia and Europe markets. It employed more than 3,400 people.
Formica was sold to Broadview Holdings earlier than expected for a price of US$840 million, or NZ$1,185 million after deductions and adjustments.
Fletcher Building CEO Ross Taylor said the sale aligns with their key business strategies.
“The divestment of Formica completes one of the key aspects of the five-year strategy we announced in June 2018 to exit non-core international businesses,” he said.
“Our 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.”
FY19 Guidance
The early completion of the sale has had a negative impact on FY19 guidance, as Fletcher Building will now only account for 11 months of Formica earnings.
Previous guidance was EBIT excluding significant items in the range of NZ$650-700 million.
The updated guidance is $620-650 million. The reduction of the lower bounds represents a $30 million cut to Formica earnings because of the lost June earnings. Along with this change, the guidance range was narrowed “to reflect year-to-date trading across the balance of the company.”
Is Fletcher Building a Buy?
While a focusing of the core business may prove beneficial to Fletcher Building, the tightened guidance range suggests that FY19 is not playing out as expected. In Australia, the construction and building markets are looking subdued amidst growing concern for the property market.
Personally, I’d be waiting to see the FY19 results before making a decision to invest. For now, I’d rather invest in one of the businesses mentioned in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
