Weakening residential construction activity dampened Boral's (ASX: BLD) profits for the half-year ending 31 December 2018, but infrastructure projects will provide some relief, says Morningstar.

First-half profit fell 6.4 per cent to $200.2 million after the building materials supplier was hit by heavy rain in both the US and Australia.

Earnings before interest, tax, depreciation and amortisation declined by 8 per cent to $271 million in the Boral Australia division, the largest revenue contributor to the group.

While the overall result was in-line with the expectations of Morningstar equity analyst Grant Slade, he says declining margins in residential construction were slightly lower than expected.

"The price increases they were able to put through in the half were quite soft, relative to what we expected," he says.

"We were expecting around 3.5 per cent, but they came in between 1 and 3 per cent, so operating margins were negatively impacted on that basis."

Morningstar reduced its fair value estimate earlier this month, by 8 per cent to $5.80 a share. This was in response to Boral's downgraded profit guidance for its two largest divisions, Boral Australia and North American plasterboard business, Boral USG.

Boral management blames the lower earnings and margins for the half on lower demand for concrete and project inefficiencies, along with a wet October in New South Wales.

Slade says rising energy costs also hurt margins, along with delays on various infrastructure projects, which negatively impacted sales volumes.


Boral is involved in several of Australia's largest infrastructure projects

"The upfront infrastructure pipeline has been slightly delayed, so there hasn't been a full off-setting impact on falling volumes [in residential]…it's still there, but it's just a timing issue."

He suggests the pay-off from some of these projects may not begin flowing through until 2020 or 2021.

"But there are some price increases [for Boral Australia concrete] due to come through in April, so that should help them recoup some of the losses.

"The top line for Boral is going to continue to grow in Australia, despite housing coming off," Slade says.

Boral is involved in several of Australia's largest infrastructure projects, including the WestConnex and F6 freeway extension and Sydney Light Rail in New South Wales, and the Melbourne Metro and Westgate Tunnel in Victoria.

It is also tendering for several upcoming projects due to complete after 2021, including the Western Sydney Airport.

Boral's half-year results reflect strong underlying businesses, which were impacted by adverse weather, particularly in North America, as well as project-related volume delays in Australia, said Boral chief executive and managing director Mike Kane.

"We expect to deliver growth in the second half," he told investors earlier today.

Net profit, which includes a $65.2 million gain on the disposal of two units, rose by about a third to $236.5 million.

At market close, Boral shares were trading at $4.90, down 1.2 per cent from the opening price of $5.


  • Net profit up 36.7pct to $236.5m
  • Net profit ex significant items down 6.4pct to $200.2m
  • Revenue up 1.8pct to $2.99b
  • Half-franked interim dividend up 0.5 cents to 13 cents