Yesterday’s housing finance figures were good news for the economy and for companies operating in the sector, especially Boral, which confirmed its recent warning of a sharp slide in interim earnings.
The number of home loans, seasonally adjusted, gained 6.4% in December from the previous month, according to the Australian Bureau of Statistics. Analysts had been expecting a smaller, 3.5% rise.
December’s rise was the third consecutive month of gains in home-loan approvals, as firstly lower interest rate cuts and then the higher new and existing home buyers grants kicked in.
Loans for new dwellings skyrocketed 15.2% in the month, seasonally adjusted, as consumers took advantage of falling interest rates and grants for first time buyers on new homes announced by the government in October.
That will be music to the likes of Boral (and CSR and Brickworks, not to mention GWA) who depend on new home building and renovation.
Boral isn’t getting its hopes up quite yet. It certainly sees an improvement coming, but not for a few more months.
Boral says lower interest rates and government spending will not help its housing business until mid-2009 after yesterday officially reporting a 43.5% slump in first half earnings.
Of course, Boral’s woes won’t be solved by a rebound in Australia: it still has significant exposure to the depressed US housing sector, which shows no sign of improving.
Net profit for the six months to December 31 was $74.9 million, down from $132.4 million in the corresponding period, with sales flat at $2.6 billion.
Earnings before interest, tax, depreciation and amortisation (EBITDA) dropped $75 million, or 21% to $285 million from the previous corresponding period.
The shares rose, then fell back to close steady on $3.08. Dividend was chopped to 7.5 cents a share from 17 cents a share previously.
Chief executive Rod Pearse confirmed the company’s recent guidance for a full year net profit of $120 million, more than half the $242.8 million in 2007/08.
But he said 2009 should be the bottom of the Australian housing cycle, but the US remains difficult to predict.
The big cuts in rates by the Reserve Bank and the increased first home buyers’ grants will make a difference, but Mr Pearse said that wouldn’t be apparent until after the middle of the year, so no joy this financial year.
Boral plans to reduce its US production plant capacity usage from 40% to 20% in the second half of fiscal 2009 in response to the continuing downturn.
It said it has also reduced staff numbers by approximately 18,000, or 8%, in the past year across all its operations.
Despite the downturn in its key markets, especially the US, Mr Pearse has again denied the need for Boral to raise capital from the sharemarket.
"We’re not currently contemplating raising equity,” he said. "We have no requirement to raise additional equity nor are we contemplating doing so,” Mr Pearse said.
Boral’s borrowings increased in the first half due to the depreciation of the Australian dollar, bringing its debt to equity ratio to approximately 79% at December 31.
Mr Pearse said the group was constantly reviewing the value of its assets, but no write-downs were needed in the first half.
"Throughout the portfolio we are focused on mitigating the impacts of the market downturns,” managing director Rod Pearse said in a statement to the ASX.
Boral said it was focusing on cutting costs, raising prices where possible and reducing production, such as in the US.
The Australian operations saw an 11% decline on lower volumes and higher costs, while US posted an EBITDA loss of $A13 million compared with a $A29 million profit the previous year. Asian EBITDA increased to $A12 million from $A9 million.
