Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Boral attractive despite profit fall

Lex Hall  |  27 Aug 2019Text size  Decrease  Increase  |  
Email to Friend

Boral fell off a cliff yesterday as it reported a fall in profit, but a solid pipeline of infrastructure projects will stand Australia’s largest building materials maker in good stead, says Morningstar’s Grant Slade. 

Boral (ASX: BLD) yesterday fell 20.6 per cent to a six-year low of $3.94 after a 7 per cent fall in underlying net profit.

It clawed back some ground on Tuesday and is trading at $4.10 - a 30 per discount to Slade’s new fair value estimate of $5.60 a share. 

Despite the fall, Slade has left his long-term outlook unchanged, citing a raft of local infrastructure projects, and says the stock looks attractive. 

Among Boral's infrastructure projects are the Melbourne Metro Rail Project, Sydney Metro, the Pacific Highway upgrade, and the Crown casino in Sydney's Barangaroo.

“We continue to expect the solid pipeline of infrastructure projects in Australia to drive modest growth in Australia segment earnings over the medium term,” Slade says. 

“Boral North America is expected to exhibit robust growth, benefiting from continued growth in US construction and secular growth in the fly ash business.” 

Revenue was roughly in line with the previous financial year at $5.86 billion.

The result was below a consensus forecast of $476.8 million, according to Refinitiv data.

Slade says infrastructure spending will keep Australian sales growth robust, despite the Australian residential construction market having peaked in 2018. He expects a five-year segment sales capital annual growth rate of 5.2 per cent.

Until recently, house prices in Australia had fallen every month since late 2017 but there have been some signs of improvement in the past two months amid back-to-back interest rate cuts and stronger interest from Chinese buyers.

“We’d expected a resumption in growth in FY20, but now forecast growth to return in fiscal FY21 with 2 per cent volume growth forecast,” Slade says.

“We cut our Australia segment fiscal 2020 EBITDA estimate by 20 per cent to $504 million. 

“However, the ongoing cyclical upswing in US construction and secular growth of the fly ash business will drive a largely unchanged Boral North America segment EBIT CAGR of near 10 per cent over the coming five years.”

Boral also announced it has reached a deal with Gebr Knauf KG to buy back the German company's 50 per cent stake in USG Boral Australia and New Zealand, returning the local business to full Boral control.

Boral is also expanding a joint venture with Knauf to expand its business in Asia. The two-stage deal will cost Boral $US441 million ($654 million).

The company declared a final dividend of 13.5 Australian cents a share, down from 14 cents last year.

is content editor for Morningstar Australia

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend