A potential solution for Australia’s housing crisis (and how savvy investors can make the most of it)

I recently met with Bruce Nicholson (CEO, MD)  and Cate Chandler (CFO) of Fleetwood Ltd (ASX: FWD). I found the story absorbing. 

Fleetwood have 3 divisions:

1. An RV manufacturing business – almost certainly for sale at the right price.
2. A labour camp base in Karratha in WA, which services the big resource players, notably RIO and Woodside amongst others. This is a good earner with a strong, long-term cash generation story, but I found it hard to get overly excited about it.
3. And the bit I liked – modular housing/classrooms/offices.

The term ‘portable’ has been consigned to the dustbin for fairly obvious reasons. Many of us would have been taught in portables and the memory lingers.  However, the demand from state governments for portables/modular continues apace.  FWD are very strong in this market in Victoria, QLD and WA, with high hopes of cracking the NSW market when it becomes a little less dominated by prime contractors.

And then of course there is modular housing. Now we all know there is a problem with housing in Australia, whether it be affordable or other.  Despite the various Ministers eloquently stating plans to build 800,000 new dwellings it just isn’t happening.  It seems to be a matter of; cost, planning, labour, incompetence…..

So, l look at FWD who manufacture in five states and I think, can this company, with either ‘super monies’ or ‘build to rent’ financiers, fill a decent proportion of the gap here?  There is little doubt that the modular product looks good and has got over the social hump of that prefab perception.

There seems little doubt the FWD can tool and gear up for vastly greater production.  And there seems no doubt that they can fill a desperately needed gap in the overarching housing market.

FWD has a good Board and sound management.  At around $2.50 the shares are decent buying on their existing fundamentals.  The yield is stated at 5% odd fully franked and the balance sheet is under control.  If they can deal themselves into the ‘housing crisis’ the shares could increase significantly in value from here. 

Hugh Robertson is a Senior Investment Adviser at Morgans Financial with over 40 years experience in the Australian Capital Markets. 

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