There is still much uncertainty around the Christchurch rebuild due to aftershocks, migration and insurance recovery, but the aftershocks are expected to become more infrequent over time. A large problem is Liquefaction (this is where sand and water rise up from beneath surface level), as this has damaged many roads, bridges and most of the pipe system. Liquefaction triggers air pockets, which can cause houses and patios to subside, power lines to fall over and roads to collapse.

Residential Division

For claims less than $10,000 a cheque is given to property owners and anecdotally, much of this money is being used for consumer spending rather than repair. Between $10,000 and 100,000, Fletcher EQR is responsible for the repair work and receives a 3.5% net margin on direct repairs. Current estimate of the residential repair work is $2-3bn over 4 years. Roughly 80,000 homes need repairing at an average $30,000 each.

In terms of rebuilds, the cost will be higher due to increased framing and foundations, which will need reinforcing. Insurance could be an issue due to building code changes. Ultimately the higher cost will need to be paid by the homeowner.

Skilled labour will also be an issue, as will accommodation for workers. Employing labour from overseas will create inflation pressures and the size of the project will inevitably lead to an increase in materials prices. Placemakers, owned by Fletcher Building, will benefit to some degree, as 35-50% of the building budget will be materials.

Commercial Buildings

The First phase is currently underway and includes the demolition of about 1000 buildings, which will take up to a year or maybe longer, depending on labour and machinery availability. It is likely that new building codes for commercial construction will include height restrictions and there could also be issues around economic feasibility, since all companies have temporarily moved out of the CBD and uncertainty regarding insurance pay-outs. It may take up to a year to resolve these issues. All together about 1000 commercial buildings need replacing, which will cost around $2-5bn. Outside of the CBD, work can start as soon as insurance issues are resolved.

Infrastructure

FBU is one of 5 partners in an Infrastructure Alliance. The total estimate of infrastructure work is around $2-3bn. Fletcher Buildings share is about 20% and work is expected to start in the next 6 months. For example, 200km of new roads needs laying, 800km of new piping, manholes, bridges and footpaths need replacing and about 700 retaining walls also need replacing. On top of this many areas need re-leveling and the Port of Lyttleton needs rebuilding.

Valuation

Delays to rebuilding could see risks to consensus numbers, but estimates have already been rebased somewhat due to weak construction data. The Christchurch rebuild is likely to add up to $800m to FBUs profit over the next 5 to 8 years and the rebuild project is likely to take longer and be greater in size than what is currently expected.

Mark Warminger

*Disclosure of interest Milford is a shareholder of Fletcher Building