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Is there a window of opportunity at Boral?

Lex Hall  |  11 Feb 2020Text size  Decrease  Increase  |  
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Is there a window of opportunity at Boral? The buildings products maker has fallen 45 per cent since its high of $8.22 in February 2018.

It is now trading at a 10 per cent discount, according to Morningstar analyst Grant Slade, who sees a couple of tailwinds for the company, namely infrastructure projects here and its fly-ash business in the US.

“Our long-term expectations for Boral remain unchanged,” Slade said a day after Boral (ASX: BLD) revealed staff at its North American windows business had inflated earnings.

Boral chief executive Mike Kane was forced to announce the news, which was followed by the news that he would be quitting later in the year.

Slade has maintained his fair value estimate of $5.30 per share. On 4pm on Tuesday, Boral was up about 3.5 per cent at $4.76.

It’s meagre relief for a company that has had endured a miserable week. Shares in the company fell as much as 12 per cent on Monday amid the revelations staff in the North American windows business had bumped up earnings figures for about 20 months.

Kane apologised to shareholders for the rubbery figures and promised the company would lift its game by improving reporting and governance.

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Since it was delivering bad news, the company also decided to pre-announce its half-year results early.

Boral expects bushfire disruptions and a general slowdown in activity to hurt second-half earnings across its three major units: Australian, North American and USG Boral.

The company flagged net profit of between $320 million and $340 million, down from $420 million last year, adjusted for the overstatement at the windows business.

Shares fell 11.65 per cent to $4.55 after 30 minutes of trade on Monday and have now fallen 45 per cent from a more than 12-year high of $8.22 in February 2018.

Boral share price chart

A couple of heads in the windows division rolled and the company said it would restate comparative financial information to incorporate the correction of windows earnings in underlying results, with historic pre-tax earnings to be reduced by $US22.6 million.

Slade has forecast five-year earnings capital growth rate of about 6.5 per cent. The key drivers of this are: “an unprecedented pipeline of Australian infrastructure projects and continued secular growth of Boral’s US fly-ash business”.

Fly ash is used to increase the strength and workability of concrete and cement. It is also better for the environment and is increasingly being used as a building material substitute. 

Boral is expected to update the market in more detail on 20 February.

is senior editor for Morningstar Australia

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