Look for building products group, Boral Ltd, getting a stronger boost from the recovering Australian home building industry than from its businesses in Asia and the US.
Even though the US sector seems to be rebounding (the $US8,000 tax break for new home buyers and builders has boosted sales and contracts in the US), the high value of the Australian dollar looks like trimming some of the gains.
The company told shareholders at yesterday’s AGM in Sydney that the 2010 will be another tough year.
Chief executive Rod Pearse (Who is about to step down) said the market conditions seen in the second half of 2008-09 would broadly continue during first half 2009-10 but the second half would be stronger than the first.
"Whilst September quarter earnings were above our expectations, market conditions remain uncertain and it is too early to project earnings outcomes for FY2010," Mr Pearse said.
The market thought about the comments and then pushed down the shares by 4.7%, or 29 cents, at $5.81yesterday.
Investors, it seems, didn’t want to hear qualified optimism. After a couple tough years, they seemingly wanted Boral more upbeat.
The company line is that future earnings and dividends will increase strongly as Australian and US housing markets recover from their current depths.
"In the US, we have confidence that the long-term underlying demand level is around 1.8 million housing starts per annum supported by solid population growth, particularly in the regions in which we operate," Mr Pearse said.
"In Australia, stronger than expected population growth forecasts and a related lift in infrastructure spend and housing starts, should underpin a significant future lift in Australian building and construction activity."
He said dwelling approvals data in Australia had improved in the three months since July, which is a good indicator for a housing recovery in the second half of the year.
But non-dwelling approvals remain weak and had begun to reduce activity and in turn Boral’s construction materials businesses, Mr Pearse added.
Boral’s concrete volumes in the September quarter were down 13% on the same period last year.
"In Asia, Boral’s key market exposures are in South Korea, Thailand, Indonesia and China. The global economic downturn impacted Asian construction activity from the September 2008 quarter.
"Various governments in Asia, notably China, have announced major stimulus packages to counter the economic downturn which should be favourable for future construction.
"In the first quarter of the year, results from our Asian operations were better than expected, with volumes ahead of budget and good price and cost outcomes."
In the US, Mr Pearse said Boral was seeing flat levels of demand at the bottom of the cycle at the moment.
"We continue to expect that demand will lift in the second half of the 2010 financial year," he said.
But he warned that the "higher Australian exchange rate however, is putting pressure on cement import parity pricing."
