First NZ sees up to 26c a share for Fletcher Building in leaky home work

By Gareth Vaughan The use of Fletcher Building's plasterboard and insulation products in the reparation of thousands of leaky homes could be worth up to 26 cents per share to the building materials manufacturer and distributor, First NZ Capital says. The Government this week revealed a package designed to tackle the country's massive leaky home problems that would see the Government and local authorities each contributing 25% of agreed repair costs and affected homeowners funding the remaining 50% with a loan guarantee underwritten by the Government, provided applicants can meet bank lending criteria. Previously the Government had only offered to cover 10% of reparation costs. First NZ Capital analyst Kar Yue Yeo estimates the upside for Fletcher, New Zealand's biggest listed company, from the accelerated reparation of leaky homes  at between 8 cents and 26 cents per share. His analysis is based on the use of Fletcher materials such as plasterboard and insulation to help fix up leaky homes. Although Fletcher doesn't make external cladding products which were at the centre of many of the leaky problems, its timber framing, plasterboard including Gib products and insulation such as Pink Batts would be in demand. Under First NZ's low-case scenario, adding 8c per share, the average number of houses rectified per year would be 4,000 with the total number of leaky homes put at 40,000 and half the plasterboard and insulation would be replaced per leaky home. In the firm's high case scenario, adding 26c per share, 9,000 houses would be repaired annually with the total number of leaky homes at 90,000 and three-quarters of plasterboard and insulation would be replaced per home. A PricewaterhouseCoopers report commissioned by the Government last year estimated between 22,000 and 89,000 homes were affected. PwC said a consensus forecast suggested 42,000 dwellings were likely to be leaky homes and noted only about 3,500, or 8%, had been repaired. PwC estimated the total cost of fixing 42,000 leaky homes, including repair and transaction costs, at NZ$11.3 billion in 2008 dollar terms. Ironically, Fletcher Building's chairman Ralph Waters was himself the victim of a leaky home. In 2005 when he was chief executive of the company he told the Dominion Post he had spent nearly NZ$400,000 fixing up his Auckland home. Waters, an Australian who moved to New Zealand in 2001 to take the Fletcher job, said at the time it had been an interesting exercise to see first hand and standards were appalling. This was first published this morning in our Daily Banking and Finance newsletter, which is for our paying subscribers. Find out more here.