New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Building Weekly</h2>
<h3>New Zealand</h3>
<ul>
<li>Housing market remains buoyant (REINZ, Jan.): House sales down -30.8% mom, +3.2% yoy (previous +8.5% mom, +45.8% yoy); days to sell in Auckland -8 yoy to 35 (vs. long-term average 35), ex-Auckland -7 to 35 (vs. long-term average 42). House prices +1.3% mom, +19.2% yoy (previous +2.2% mom, +18.0% yoy), with Auckland +17.7% yoy and ex-Auckland +20.4% yoy.</li>
<li>What net migration? (Dec.): Net gain of 451 migrants in December -94.6% yoy (previous +643, -92.6%). Calendar 2020 +44.1k (2019 73.1k).</li>
<li>Concrete production finishes the year strong (4Q20): +4.5% qoq, +8.3% yoy (previous +36.7% qoq, +4.4% yoy), with growth seen across all major regions, including regional North Island +22% yoy, Auckland +9%, Waikato/BoP +6%, Canterbury +3%, Wellington +3%, and regional South Island +2%.</li>
<li>FBU reports strong 1H, operating trends expected to continue (1H21): FBU reported 1H21 EBIT +48% underpinned by robust NZ activity and cost out. Management comments highlighted a slower Jan/Feb ramp up in activity but with levels now back in line with the end of 2020, eased import competition due to supply chain issues, and solid product price increases but some input cost pressure.</li>
<li><a href="https://www.rbnz.govt.nz/news/2021/02/financial-stability-strengthened-by-firmer-lvr-restrictions" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.rbnz.govt.nz/news/2021/02/financial-stability-strengthened-by-firmer-lvr-restrictions&amp;source=gmail&amp;ust=1613693289494000&amp;usg=AFQjCNFeXXMaG_P57rhNPmY9r6pkVrAemg" rel="noopener">RBNZ reinstates LVR restrictions</a>: “We expect mortgage lenders to respect the 60/5 investor restrictions immediately with all new loan approvals”</li>
<li><a href="https://www.nzherald.co.nz/business/major-bank-clamps-down-on-new-build-lending-to-investors-ahead-of-lvr-changes/JTIRGO4C55SRRDWOV3GWU22ZCQ/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.nzherald.co.nz/business/major-bank-clamps-down-on-new-build-lending-to-investors-ahead-of-lvr-changes/JTIRGO4C55SRRDWOV3GWU22ZCQ/&amp;source=gmail&amp;ust=1613693289494000&amp;usg=AFQjCNH14vamATRCMhjI9XzJyCxTfPGUKw" rel="noopener">Major bank clamps down on new build lending to investors ahead of LVR changes</a>&nbsp;despite new builds being exempt from lending restrictions</li>
<li><a href="https://www.mfe.govt.nz/rma/resource-management-system-reform" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.mfe.govt.nz/rma/resource-management-system-reform&amp;source=gmail&amp;ust=1613693289494000&amp;usg=AFQjCNGLWLsFWJzxWH7oL3tKQ596ArZ3gg" rel="noopener">Resource Management Act to go</a>, replaced by three pieces of legislation: Natural and Built Environments, Strategic Planning, and Climate Change Adaptation Bills will be introduced to Parliament in late 2021 with the aim of passing to law by the end of 2022.</li>
<li><a href="https://www.stuff.co.nz/business/124156787/price-hikes-in-wings-as-businesses-fend-off-cost-pressures" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.stuff.co.nz/business/124156787/price-hikes-in-wings-as-businesses-fend-off-cost-pressures&amp;source=gmail&amp;ust=1613693289494000&amp;usg=AFQjCNEIlaPrebtVpRlsXXRaP27rxh5H4g" rel="noopener">Steel &amp; Tube fends off cost pressures</a>:&nbsp;“Chief executive Mark Malpass said its steel mill suppliers were telling him that raw materials, particularly iron ore and nickel, had risen significant[ly] as had transport and container costs.”</li>
<li>Construction activity uninterrupted by community COVID cases: <a href="https://www.nzherald.co.nz/business/workers-return-to-wet-auckland-building-sites-under-strict-alert-level-3-measures/FOBVXB424N33QJPPD32QDWOHKM/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.nzherald.co.nz/business/workers-return-to-wet-auckland-building-sites-under-strict-alert-level-3-measures/FOBVXB424N33QJPPD32QDWOHKM/&amp;source=gmail&amp;ust=1613693289494000&amp;usg=AFQjCNGYws3x9m_LweeWRetQWGgoemipkg" rel="noopener">Workers return to wet Auckland building sites under strict alert level 3 measures</a></li>
<li>Alternative methods to fix housing shortage: <a href="https://www.stuff.co.nz/life-style/homed/renting/124183905/unleashing-buildtorent-to-solve-the-rental-crisis" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.stuff.co.nz/life-style/homed/renting/124183905/unleashing-buildtorent-to-solve-the-rental-crisis&amp;source=gmail&amp;ust=1613693289494000&amp;usg=AFQjCNFMzptm_jXZ1VfGrjLIRQw77xkvGw" rel="noopener">Unleashing 'build-to-rent' to solve the rental crisis</a></li>
</ul>
<h3>Australia</h3>
<ul>
<li>New sales fall back as HomeBuilder ends (Jan.): Detached dwellings -69.4% mom, -12.1% yoy (previous +91.8% mom, +203.2% yoy).</li>
<li>Mixed reporting season outlook comments:</li>
</ul>
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Boral:&nbsp;1H21 AU EBIT -20% yoy with concrete volumes -8%, quarries -3%, and cement -4% as well as building products revenue +10%; expecting “continued weakness in multi-residential and non-residential construction”. North America EBITDA -28% yoy with Fly Ash volumes -9%, roofing flat, and stone +4% as well as light building product revenue +6%; “production volumes should continue to ramp up to meet strong market demand”.
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;James Hardie:&nbsp;3Q North America volume growth of +17% yoy, Europe +17%, and Asia-Pacific +9%.&nbsp;"Based on the continued, strong momentum in its business and expectations for continued growth in residential end markets” JHX lifted FY21 guidance by 11% (at the midpoint).
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GWA Group:&nbsp;1H21 Australia revenue -6% yoy, NZ+3%, and UK +6%. Expects 2H21 Australian detached residential and renovation activity to increase but multi-residential and non-residential to remain subdued. “Growth” expected in NZ, the UK, and Asia.
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CIMIC&nbsp;(FY20): Underlying group EBIT down -24% on revenue of -14%. Guidance for +8-14% NPAT growth. “Outlook remains positive for construction and services, with new work recovering” supported by “significant stimulus packages” with “more than $500bn of tenders to be bid and/or awarded in 2021 and beyond”.
<h3>International</h3>
<ul>
<li>US: Healthy housing permits and starts (Dec.): Permits +4.2% mom, +17.0% yoy (previous +5.9% mom, +8.3% yoy), with single-family dwellings up +30% yoy and volatile multi-family down -7%. Starts +5.8% mom, +5.2% yoy (previous +3.1% mom, +15.1% yoy) on single-family +28% yoy and multi-family -39%</li>
<li>US: Homebuilders remain confident (Jan.): 83 (previous 86; positive &gt;50&gt;&nbsp; negative).</li>
<li>US: Reallocation of travel spend to alterations and additions continues (Remodelling market index, 4Q): 79.0 (previous 82.0; positive &gt;50&gt;&nbsp; negative).</li>
</ul>
Chart of the week: It’s not just Auckland, house price appreciation is broad based
Change in house price index (3m moving average, yoy%)
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1691983174971843271&amp;th=177b21bbae2262c7&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9A0EVKoDV2JPEQwNPn31FxqBppBEgwP-YhzWsqW1VlOEcuzCBjsfv_YZBHuxdGg_FkOVFvNikBgDvfJ9o7t2TtSOxIXbGFsYWQW5hwF8hYNWu3syMB_4CGYlE&amp;disp=emb" width="455" height="312" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source:&nbsp;REINZ,&nbsp;Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1691983174971843271&amp;th=177b21bbae2262c7&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9-0qPkWoEU5JLyFKRZfT8sLPteSHIANJrQG6uJkzrGKtlQtZo9GQbMFFLA2FhIgm4gaBck7Qp9q0GgaWWeUE91Rt7Js1PpIcvrmYUKYd2lf9YvVa7TBLDfl9o&amp;disp=emb" class="editor-image img-responsive"></figure>
 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Building Weekly
New Zealand

Housing market remains buoyant (REINZ, Jan.): House sales down -30.8% mom, +3.2% yoy (previous +8.5% mom, +45.8% yoy); days to sell in Auckland -8 yoy to 35 (vs. long-term average 35), ex-Auckland -7 to 35 (vs. long-term average 42). House prices +1.3% mom, +19.2% yoy (previous +2.2% mom, +18.0% yoy), with Auckland +17.7% yoy and ex-Auckland +20.4% yoy.
What net migration? (Dec.): Net gain of 451 migrants in December -94.6% yoy (previous +643, -92.6%). Calendar 2020 +44.1k (2019 73.1k).
Concrete production finishes the year strong (4Q20): +4.5% qoq, +8.3% yoy (previous +36.7% qoq, +4.4% yoy), with growth seen across all major regions, including regional North Island +22% yoy, Auckland +9%, Waikato/BoP +6%, Canterbury +3%, Wellington +3%, and regional South Island +2%.
FBU reports strong 1H, operating trends expected to continue (1H21): FBU reported 1H21 EBIT +48% underpinned by robust NZ activity and cost out. Management comments highlighted a slower Jan/Feb ramp up in activity but with levels now back in line with the end of 2020, eased import competition due to supply chain issues, and solid product price increases but some input cost pressure.
RBNZ reinstates LVR restrictions: “We expect mortgage lenders to respect the 60/5 investor restrictions immediately with all new loan approvals”
Major bank clamps down on new build lending to investors ahead of LVR changes&nbsp;despite new builds being exempt from lending restrictions
Resource Management Act to go, replaced by three pieces of legislation: Natural and Built Environments, Strategic Planning, and Climate Change Adaptation Bills will be introduced to Parliament in late 2021 with the aim of passing to law by the end of 2022.
Steel &amp; Tube fends off cost pressures:&nbsp;“Chief executive Mark Malpass said its steel mill suppliers were telling him that raw materials, particularly iron ore and nickel, had risen significant[ly] as had transport and container costs.”
Construction activity uninterrupted by community COVID cases: Workers return to wet Auckland building sites under strict alert level 3 measures
Alternative methods to fix housing shortage: Unleashing 'build-to-rent' to solve the rental crisis

Australia

New sales fall back as HomeBuilder ends (Jan.): Detached dwellings -69.4% mom, -12.1% yoy (previous +91.8% mom, +203.2% yoy).
Mixed reporting season outlook comments:

-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Boral:&nbsp;1H21 AU EBIT -20% yoy with concrete volumes -8%, quarries -3%, and cement -4% as well as building products revenue +10%; expecting “continued weakness in multi-residential and non-residential construction”. North America EBITDA -28% yoy with Fly Ash volumes -9%, roofing flat, and stone +4% as well as light building product revenue +6%; “production volumes should continue to ramp up to meet strong market demand”.
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;James Hardie:&nbsp;3Q North America volume growth of +17% yoy, Europe +17%, and Asia-Pacific +9%.&nbsp;"Based on the continued, strong momentum in its business and expectations for continued growth in residential end markets” JHX lifted FY21 guidance by 11% (at the midpoint).
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GWA Group:&nbsp;1H21 Australia revenue -6% yoy, NZ+3%, and UK +6%. Expects 2H21 Australian detached residential and renovation activity to increase but multi-residential and non-residential to remain subdued. “Growth” expected in NZ, the UK, and Asia.
-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;CIMIC&nbsp;(FY20): Underlying group EBIT down -24% on revenue of -14%. Guidance for +8-14% NPAT growth. “Outlook remains positive for construction and services, with new work recovering” supported by “significant stimulus packages” with “more than $500bn of tenders to be bid and/or awarded in 2021 and beyond”.
International

US: Healthy housing permits and starts (Dec.): Permits +4.2% mom, +17.0% yoy (previous +5.9% mom, +8.3% yoy), with single-family dwellings up +30% yoy and volatile multi-family down -7%. Starts +5.8% mom, +5.2% yoy (previous +3.1% mom, +15.1% yoy) on single-family +28% yoy and multi-family -39%
US: Homebuilders remain confident (Jan.): 83 (previous 86; positive &gt;50&gt;&nbsp; negative).
US: Reallocation of travel spend to alterations and additions continues (Remodelling market index, 4Q): 79.0 (previous 82.0; positive &gt;50&gt;&nbsp; negative).

Chart of the week: It’s not just Auckland, house price appreciation is broad based
Change in house price index (3m moving average, yoy%)

Source:&nbsp;REINZ,&nbsp;Forsyth Barr analysis
Rohan Koreman-Smit&nbsp; Senior Analyst, Equities

 P: +64 9 368 0085 | TF: 0800 367 227&nbsp; Level 23, Lumley Centre, 88 Shortland Street, Auckland

Fletcher Building

Building Weekly