Tag: ASX:BLD

The market remains optimistic about future earnings growth for Boral. The recent Headwater acquisition in the US provides Boral with added exposure to the US housing market. Domestically, Boral is well placed to benefit from the an increase in large scale infrastructure projects.

We feel some caution is warranted though, given the weaker trends emerging is both US and domestic housing construction data. The stock trades on 19x forward earnings and less than a 4% yield.

FY18 revenue is likely to be $5.8b, EBITDA $1.15b, Net Profit $490m and DPS of $0.29.

Boral has created a negative pricing structure following the stock making a lower low and then a lower high at $6.35 in last week’s trading.

With our general concerns around both domestic and US housing construction trends, combined with Boral’s  high valuation and moderate underlying earnings growth, we think this is worth keeping on your “short signal” list.

We thought it worthwhile to review the earnings outlook for Boral, post the acquisition of the Headwaters Group.

In FY18 revenue grows to $6.2b, EBITDA $1b, EPS $0.38 and DPS of $0.24 placing the stock on a 4% forward yield.

We’re cautious of the risks for Boral in achieving these targets and it appears the stock is relatively full value at the current price.

We issued a buy rec at $5.00 on Boral following their recent announcement to acquire Headwater in the US.

Boral will raise $1.6bn via a fully underwritten pro-rata accelerated renounceable entitlement offer, $450m via a fully underwritten placement and the remainder through cash and debt. The placement is part of an overall $2bn+ equity raising to fund the $3.5b acquisition of Headwaters

FY17 PE is 13.5x and assuming EBITDA of $670m we have the stock on a forward yield of 4%.

To help mange the risk we use call options to achieve our target exit price.

Boral intends to acquire US based building product group Headwaters Inc in a deal worth US$2.6b  The transaction has been approved by the Headwaters’ Board and is expected to close mid next year.

Boral will raise $2b through a $1.6bn retail and institutional entitlement offer and a A$450m institutional placement at an issue price of $4.80 per share. The remaining $1.6b will be funded through existing cash and debt.

We continue to see upside in Boral & James Hardie.

The Boral AGM provided an update on 1QFY17 earnings due to weather impacts and a slowdown in WA, FY17 earnings are now tracking below market expectations.

We continue to like BLD and JHX as exposure to improving infrastructure markets in Australia and ongoing positive trends within US housing. The sell-off in BLD is probably overdone and it’s worth adding this to your watch list. $5.50 as a potential buy level on any further weakness should be monitored as an entry point.

Y18 revenue growth 5% to $4.2b, EBIT growth into FY18 of 8% or $450m, EPS of $0.40 and DPS of $0.25 places the stock on an FY18 yield of 4.5%