Fletcher Building remains open to further earnings risks, over the combined earnings before interest and tax losses now totalling $452 million for its Building + Interiors division; spread over 2017 and 2018.
At the heart of the problems is the Auckland international convention centre, and adjacent Hobson St hotel and Christchurch's justice precinct; two of about 20 projects mostly undertaken on fixed-price contracts.
High on the cards of changes by analysts are expectations of business divestment and rationalisation, to guide New Zealand's largest company back toward profitability.
Both the Auckland and Christchurch projects will be loss making. The $475 million valued convention centre is estimated to lose $165 million and the $230 million justice precinct $140 million.
Fletcher shares at $7.64 yesterday were 20.9% down on a year ago.
Chairman Sir Ralph Norris fronted up to shareholders this week over numerous deficiencies, including capability failings, inconsistent risk management and ineffective management of project design and engineering.
Forsyth Barr broker Damian Foster yesterday acknowledged Fletcher had identified there was "further downside risk and uncertainty exists''.
However, he did not believe those risks would be "fully extinguished'' until the convention centre hotel and justice precinct were completed, given labour capacity constraints and "significant'' annual cost inflation issues.
"To highlight the magnitude of the risk management failure, the $452 million of expected B+I losses over full year 2017-18 now equates to 28 years of average annual profit for the business,'' Mr Foster said.
Craigs Investment Partners broker Peter McIntyre said it was disappointing Fletcher had issued a third construction downgrade this week, but retained a "buy'' recommendation on the stock.
"The downgrade was largely factored in,'' he said.
"Encouragingly, of the four key B+I and [other] infrastructure projects reviewed by KPMG, three were found to be well-run projects, with only the convention centre having, albeit significant, deficiencies,'' he said.
Mr McIntyre said the market would from now be receiving quarterly updates on individual project performances within B+I, until both major projects were completed, in the about the second quarter of 2019.
Mr Foster was not upbeat about the appointment of Ross Taylor, a known "company turnaround'' chief executive, because Fletcher's was an inherently challenging business with limited opportunities for "easy management wins''.
"We're not optimistic a management change will improve prospects for shareholder returns,'' he said.
Fletcher's announced strategic review meant divestments were a "high probability'', particularly in Australia.
"While we see merit in Fletcher narrowing its portfolio and improving management focus, we doubt there is scope for material value accretion through divestment,'' Mr Foster said.
Mr McIntyre believed Mr Taylor's choice was a "surprise'', given the acting chief executive from in-house was the likely choice, but Mr Taylor's construction experience should be "very helpful''.
He said when Mr Taylor presented his forthcoming strategy to the Fletcher board, it should include a "meaningful rationalisation'' of its 30 business groups and the different geographies it works in.
