38% of Boral profit blown away - building materials headwinds, part 2.

Attribution: Getty.

Attribution: Getty.

Blown away in FY19.

Earlier this month, and prompted by Adelaide Brighton’s financial performance, I wrote about the domestic building materials sector and the headwinds it is facing.

In that note I mentioned:

“At present, the headwinds are particularly strong for Adelaide Brighton (ABC), however other market participants will not be immune and CSR and Boral (BLD) are already down trend.”

Let’s call that Part 1.

Part 2 of the story is found in Boral’s financial results which were released today, and which provide a window into how strong the sectoral headwinds really are.

Specifically, Boral announced a decline in year on year net profit after tax of 38%.

boral npat 38pc down.JPG

Cyclical home building pressures in key markets, particularly Australia with a 15% decline as per the Boral data, plus the Adelaide Brighton results on 5 August together demonstrate a particularly bleak domestic home building market, here in Australia.

Boral’s US business (starts down only 2%) plus its international non-residential and infrastructure markets provided some cushioning, otherwise the profit decline would have been far larger in percentage terms.

Blowing just as hard in FY20.

Probably the key reason for the stock tanking >20% today (that’s over a billion wiped out) was the FY20 profit guidance.

Boral expects profit in 2020 to be between 5% to 15% lower than in FY19.

That suggests close to a 44% decline in profit since FY18.

Other than for James Hardie, Boral is the largest listed materials group in Australia, and this says to me that there is no safety in size/numbers. What’s also not helping the industry is a weak AUD and Philip Lowe’s comments at Jackson Hole which suggests lower interest rates and a lower dollar are where he expects Australia to be as a result of global interest rate trajectories.

It also reiterates that domestic building materials players need to think long and hard about their go-forward strategies.

Mike.


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