Greater expectations for Fletcher Building - despite war risks
Saturday, 18 April 2026
Fletcher Building is facing some near-term risks due to the war in the Middle East, but investment firm Forsyth Barr has upgraded its expectations for the company.
The verdict is likely to be welcome news for Fletcher, which has navigated turbulent times over recent years, and it comes after the company released its third-quarter update to the NZX on Thursday.
In the update, Fletcher said the Middle East conflict had heightened global risk in energy markets, key shipping routes and the pricing and availability of critical inputs.
The construction giant was exposed indirectly through supply chains, freight routes, energy costs and broader economic impacts on construction demand across Australasia.
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Fletcher chief executive Andrew Reding said the company’s plastic and resins business, Iplex, its urea-based business Laminex and its insulation products were most immediately exposed to the pressures.
“Short-term supply has been secured, with mitigation actions underway to diversify sourcing and manage potential constraints.”
But the company was also exposed on the fuel front, as it used nearly 36 million litres of fuel annually, with diesel accounting for 94% of the total usage, he said.
The heavy building materials division was responsible for more than half of total consumption, while the construction division accounted for nearly a third.
A 10c increase in diesel prices added a cost $3.4m annually to the company’s fuel costs, he said.
“While the price increases to date are significant, the impacts are being partly mitigated through bulk purchasing, hedging and pass-through pricing mechanisms.
“Business units have responded promptly, with actions focused on maintaining continuity of supply, protecting margins and cash flow, and preserving strategic optionality.”
Reding said price increases across some divisions had been modest, but in other divisions, such as plastics, they had gone up by up to 36%, and reflected cost pressures.
“These have been broadly in line with wider industry responses. Early signs of demand softening are emerging, particularly through some project delays.”
While it was not possible to tell what the overall impact of the Middle East crisis on Fletcher’s financial performance would be at this time, a range of factors would potentially impact, he said.
They included the duration of the crisis, changes to global supply chains, fuel and commodity availability and price volatility, recoveries of fuel-linked surcharges, emerging counterparty credit risk and changes in market volumes and customer behaviour and plans.
“However, the group has a strong balance sheet and liquidity position to enable it to manage through these impacts.”
The update included information on Fletcher’s key product sales volumes for the March quarter of the 2026 financial year.
Reding said the quarter’s volumes continued to show early signs of improvement across the portfolio - but with the caveat that the quarter largely preceded the escalation of the Middle East conflict.
Earlier this year, Fletcher reported a “steady” performance in its half year results, and announced a net profit of $45 million, its first since June 2023.
In a report on Friday, Forsyth Barr analysts upgraded their rating for Fletcher to outperform from neutral.
The reported volumes highlighted activity was robust over the quarter and demand was in the early stages of a cyclical recovery prior to the Middle East conflict, they said.
“While current high oil prices create near-term risks on costs and demand, Fletcher is managing the cost with a mix of hedging and price increases and demand is holding up surprisingly well for now.
“We acknowledge the near-term uncertainty, but continue to expect an eventual cyclical recovery in activity.”
The company would also see benefits from its strategic reset to lift earnings, lower debt, improve cashflow and enable dividends to resume, they said.
“Settlement of the construction division sale and realisation of residential division invested capital will reduce debt to the low end of Fletcher’s target range, and result in better free cashflow generation.”
That would be enhanced now the company’s legacy construction projects, such as the New Zealand International Convention Centre and the Pūhoi to Warkworth motorway, were completed.
Fletcher was trading broadly in line with its long-term average multiple of the company value at roughly ten times its annual operating profit, they said.
“We see positive risk/reward as demand picks up and self-help improves earnings and free cashflow.”