Morningstar | Fletcher Building's Long-Term Margin Improvement Opportunity Remains Intact, but We Don't See a Moat
Fletcher Building is the largest building materials company in New Zealand, with a diverse suite of businesses across cement, concrete, insulation, laminates, steel, plasterboard, plumbing supplies, and hardware retail, as well as construction and real estate development. Revenue and earnings are linked to the housing construction cycle in New Zealand and Australia. In its home market, Fletcher has strong brands and a leading distribution channel, and it dominates market share in key categories. The building materials segment in general, however, is subject to easy product substitution, low switching costs, and limited pricing power, making a competitive advantage difficult to sustain. Together with a poor track record of acquisitions, Fletcher has been unable to earn a sustainable return above its cost of capital.Fletcher Building is a holding company. Through its subsidiaries, Co. operates in six divisions: Heavy Building Products, which manufactures, distributes and markets heavy construction material; Light Building Products, which manufactures a range of building products for residential and commercial markets; Laminates and Panels, which manufactures and distributes decorative surface laminates; Distribution New Zealand and Distribution Australia, which consist of building, plumbing, pipeline and steel distribution businesses in Australia and New Zealand; and Construction, which is a general contractor in New Zealand and the South Pacific and a builder of residential homes in New Zealand.
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