Macquarie thinks this ASX 200 stock could crash 45%

MotleyFool
Aug 21

Fletcher Building Ltd (ASX: FBU) posted its FY25 results yesterday morning, and investors are worried.

The ASX 200 stock is trading in the red in early morning trade. At the time of writing, Fletcher Building shares are 1.79% lower at $2.75 a piece, having dropped 3.85% since Monday.

On the New Zealand exchange, Fletcher Building Ltd (NZE: FBU) is down 1.30% to NZ$3.04 per share.

In its FY25 results, the New Zealand-based building and construction company, which has diversified operations in both New Zealand and Australia, revealed a 9% drop in revenue and a net loss of $419 million. The company's earnings before interest and tax (EBIT) before "significant items" were $384 million, $125 million lower than FY24.

The company had previously flagged to investors that mounting losses will impact its full-year result to 30 June. At the time, managing director and group chief executive officer Andrew Reding said he expects EBIT before "significant items" for FY25 to be in the range of $370 million to $375 million. 

The final result was a little above this range but still below the prior EBIT guidance of $420 million.

Here's what Macquarie Group Ltd (ASX: MQG) has to say about the stock following its latest financial update.

Macquarie's outlook on the ASX 200 company

In a note to investors this morning, the broker has confirmed its underperform rating on the stock. It also lowered its 12-month target price to NZ$1.67, down from NZ$1.80 in June, citing "predominantly negative catalysts".

According to Fletcher Building's trading price on the NZX at the time of writing, this represents a potential downside of 45%.

The broker also lowered its FY26-28 earnings per share (EPS) down -5%, -6%, and -9%, respectively. This reflects large 2H 25 misses from Fletcher Building's Concrete and Australia segments. Its Concrete and Australia businesses suffered a 22% and 27% drop in EBIT over the half-year period.

"There is no seasonality in FBU EBIT in terms of volume. The historic 2H skew for the co. is due to accounting around Construction revenue recognition and rebate wash-ups as well as spec builder division timing sales to meet earnings targets. ANZ volumes continued to fall into final quarter (NZ RMC decline quickened by example outside of Firth market share movements)," Macquarie said in its note.

It also noted that there were $13 million of new above-line net gains for FY25. This offset already disclosed $31 million above-line losses. There were also $702 million of significant item losses (~$180m cash). Macquarie said it understands that there are likely to be ongoing significant item losses going forward.

"Positively, WA leaking pipe and Silicosis provisions were unchanged. States a) Costs incurred to date under the IR by Iplex Australia are in line with the estimates used to derive the current provision. These liabilities are however long life contingencies (15 years on average for chronic silicosis to manifest) and WA Building Commissioner has increased limitations period for Laminex leaky pipe claims (inter alia) from 6 to 15yrs," it said.

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