Boral, James Hardie Industries and CSR have rallied from oversold levels, as buyers have been attracted to the reduced PE multiples. The question is whether non-residential and engineering construction will offset the fall in residential construction volumes.
Australian housing approvals have been trending down for the past 6 months with Jan approvals of 172k, down 30% on the same time last year.
BLD, JHX and CSR are now under Algo Engine sell conditions and we remain cautious given the broader market index back drop.
We consider Boral as the best recovery opportunity, but expect short-term sell pressure to persist.
James Hardie is a current holding within our ASX 100 model portfolio.
Today’s release of the 3QFY19 earnings were slightly below market consensus, however, the full year guidance for FY19 NPAT to be in the range of US$280-320m, supports a higher share price.
Off the back of the improved full year earnings outlook, James Hardie has rallied from $15 to $16.
Based on FY20 earnings, we have JHX trading on a 4.2% yield.
Shares of James Hardie have dropped over 17% in the last three trading sessions and posted a 2.5-year low of $16.60 in early trade today.
The catalyst for the sell off was that JHX’s 2Q EBIT and NPAT fell short of consensus forecasts and management downgraded full year NPAT by 5%.
In the bigger picture, the softening of Q2 margins due to input cost inflation looks to be transitory and the group is still expected to generate net profits of between US313 and US 335 million for FY 2019.
As such, we consider the recent drop in the share price as an opportunity to invest in a high quality business at a time when external factors are increasing input costs.
JHX is part of our ASX Top 50 portfolio and we see scope for a $20.00 initial price target over the medium-term.
During last week’s earnings update, James Hardie provided an FY19 EBIT outlook in the range of US$300-340m. This was slightly below market consensus, suggesting 20% growth will not be achieved and it could be more in the range of flat to 10%.
With the stock trading on a high PE and an FY18 yield of only 2%, there’s not much room for disappointment.
JHX is a current holding within our ASX50 & 100 model portfolios, we’ll watch for the next Algo Engine buy signal and revisit the “buy side” case and update our readers.
Our ALGO engine triggered a buy signal for JHX on July 31st at $21.50.
Since then the stock has picked up almost 6% and is over 1% higher at $22.75 in early trade today.
The company will release their Q1 FY19 results next Friday.
Expectations are that the EPS should rise to 67 cents per share on stronger earnings.
Our initial upside target is the May 16th high near $23.85.
Our Algo Engine generated a buy signal for JHX recently at $21.50.
With the US housing cycle remaining strong, (although weak numbers in June are the reason for some caution), and James Hardie having a dominant market position in fiber cement, we think the long term trajectory for earnings & margins are strong.
FY19 revenues should increase 20% and underlying EBIT will jump from $380m to $480m.
With the stock trading on a low 2.2% forward yield, we recommend adding a covered call option to enhance the income.
Selling the $23.50 October strike adds $0.50 per share of additional cash flow.
JHX goes ex div $0.30 on the 12th of December.
Our Algo Engine generated a buy signal in James Hardie recently at $22.00.
The stock is a current holding within the ASX Top 50 model.
Based on 20% EPS growth into FY19, JHX now trades on a forward yield of 3%.
Our Algo Engine recently generated a buy signal in James Hardie Industries and the stock was added to the ASX50 model.
While the Australian housing cycle is turning, JHX continues to grow above market through a combination of plant efficiencies and new new products.
We remain “long” JHX whilst the share price holds above the $21.50 price level.
JHX goes ex-div $0.30 on the 12th of December. Adding a November $24 call option will enhance the income by a further $0.60 per share.
Our ALGO engine triggered a buy signal on JHX into Monday’s ASX close at $22.45. The share price surged 4.5% to $23.50 yesterday and has pulled back into the $23.00 area in early trade today.
Tuesday’s sharp move higher was prompted by the release of their Q4 full-year results, which reflected a 12% increase in EBIT to USD397 million, as well as positive guidance for FY 2019.
We see scope for a move back into the April high levels just below $24.30 and suggest working a sell stop at or near the recent low of $22.20.
James Hardie goes ex-div $0.30 on the 6th of June. Adding a $24 Dec call option generates an additional $0.92 per share income.
Our ALGO engine triggered a sell signal for JHX on December 27th at 22.40
It took several sessions for this trade to develop as the share price traded up to 22.80 on January 9th.
However, JHX shares have dropped over 6% this week and posted a low of $21.32 in early trade today.
A sharp drop in US Housing starts overnight has added to the potential downside pressure on the share price.
Single family housing starts declined by 8.2% in December to 1.19 million units. This is the largest monthly decline in 2 years and could further soften the JHX share price.
We see the next level of support at $21.00 followed by the mid-November low of $20.55.
JHX shares are traded as a CFD contract on our SAXO Go trading platform.
Call us now for more information about JHX and other names available to trade on our SAXO Go Platform.