The poor blinkered dears in the market turned against Boral yesterday, selling the shares down almost 6% or so after it revealed a half a billion dollar deal to buy control of a plasterboard joint venture in Asia.
The news of the Asian deal, delivered at the same time as the company revealed a 2011 full year profit in line with analysts’ forecast of $166 million from continuing operations, saw the shares lose nearly 6% to a day’s low of $3.60 before they steadied to end off 4.9% at $3.69, a loss of 17c.
Judging from early analyst comments, the market thought the deal was too expensive.
Boral revealed that it would pay $A589 million (429 million euros) to by French cement giant, Lafarge out of their Asian plasterboard joint venture.
The 429 million euros represents the enterprise value of Lafarge’s half of the business, and once debt and minority interests are excluded, the price will be 380 million euros or $A530 million.
The price is around 11 times earnings of $108 million, higher than what Lafarge has sold some of its assets in Europe and Australia.
But with Boral owning the other half of the business which has been going for 11 years, means the chances of making this purchase pay are improved considerably. There should be no surprises for Boral management in what they have bought.
And they have taken control of a good business, judging from the background provided yesterday.
It is a business spread across eight countries, exporting to 30 countries and growing sales at 10% a year, which compared to the current outlook here for bricks and cement and concrete, is strong growth.
The business has the largest plasterboard network in Asia, with leading market shares in the higher growth markets of Korea, Thailand, Indonesia, Vietnam, Malaysia, India and the Philippines, and an established growth platform in China.
Boral is also using the strong Australian dollar to expand: a few years ago the price could have been well over $A700 million.
All in all it has bought control of an established business with market leading positions, not something built on hope and blue sky.
And it gives Boral another offshore diversification away from Australia and away from the depressed American home building market.
"The acquisition of Lafarge’s interest in LBGA is an outstanding opportunity to gain management control and own the majority of a high quality business with excellent growth prospects and strong earnings potential," Boral Chief Executive Mark Selway said in a statement yesterday.
The purchase will be funded through a combination of existing bank debt and a new $500 million 4-year bank facility.
Boral said it would reinstitute its dividend reinvestment plan to help rebuild its capital. That may run for the next two financial years.
Earlier Boral reported a net profit of $166 million from continuing operations for the year to June, in line with analysts’ expectations after a loss of $19 million a year earlier.
Full year revenue rose 4% to $4.7 billion and underlying profit after tax was up 20% to $173 million
The company said forecasting the year ahead in the current conditions was difficult given weak and uncertain markets in Australia and the US, but it said it hoped to see an improvement in the second half of the current financial year.
Boral will pay a final dividend of 7c a share (6.5c previously), making a total for the year of 14.5c, up 1c from the 13.5c paid in the 2010 financial year.
As always, that’s a good, confident sign from the company about the future and the impact of the big deal.
Still in building and Fletcher Building, the big NZ group, lifted net profit 4% to $NZ283 million ($A226.61 million) in the year to June 30 as an initial contribution from the recently acquired Crane Group helped offset the impact of the Christchurch earthquakes.
The company told the ASX and NZ exchange yesterday that the results included three months of operating earnings from Crane Group, while "net earnings were approximately $20 million lower than earlier market guidance due to the disruption caused by the earthquakes in Canterbury".
The market liked the results pushing the shares up 10c in Australia to $6.23.
Operating earnings – before interest and tax and unusual items – rose 14% to $NZ596 million.
Group sales were 9% higher at $7.416 billion including sales of $623 million for Crane for the period since its acquisition.
"Excluding Crane, total sales were in line with those recorded in the previous year," the company said.
Net earnings before unusual items rose to $NZ359 million from $NZ301 million the year before, with the company to pay a final dividend of 17c per share, up from 15c a year earlier.
That will take total payout to 30c NZ a share, up from 23.6c in 2010.
CEO Jonathan Ling said in the statement that the result reflected mixed trading conditions seen in the key markets in which Fletcher Building operated.
He said
