For some obscure reason, investors took the big stick to Boral shares yesterday, sending them down 6.5% in early trading to $6.87, despite a higher final dividend and a solid earnings report for 2015-16.
But someone must have taken a second or third look at Boral’s numbers and concluded‘ not too bad; and the losses abated and the shares rebounded slightly to $6.92, down 4.1% on the day.
Boral directors lifted the final 2 cents to 11.5 cents making for a very tasty 25% boost to the full year payout to 22.5 cents a share.
At first glance it wasn’t an encouraging result – a flat full-year profit of $256 million on a small dip in revenue. But the company pointed out to the 7.5% rise in underlying profit (to $268 million) on higher sales in Australia and the United States.
Revenue for for the year to June 30 eased 2.3% to $4.3 billion.
Boral said the revenue line was impacted by higher revenues associated with the housing markets in Australia and the USA which helped offset the expected fall in revenues from resource-based and other major project activity, including LNG projects in Queensland, Western Australia and the Northern Territory.
It said that on a reported basis, sales revenue of $4.3 billion was down by 2% on the prior year, due to the impact of equity accounting for the Boral CSR Bricks joint venture, formed on 1 May 2015.
The company’s earnings before interest and tax (EBIT) before significant items rose 12% to $398 million despite lower property earnings. “ he EBIT growth was underpinned by improvements in margins, stronger housing activity in the US and continued strength in Australia,” according to directors.
In comment in the profit report, CEO, Mike Kane said that continued growth in earnings across the business reflects the benefits of Boral’s continuing improvement program, which he says "has shaped the Company’s priorities for the past four years and contributed to a significant profit uplift over that time.”
“We have continued to improve our performance across our businesses in line with our strategy, managing our portfolio more efficiently and maintaining a strong balance sheet,” Mr Kane said.
“We have just reported a strong increase in Boral’s profit after tax before significant items to $268 million, even after factoring in $21 million of lower post-tax earnings from property sales.
“The continued growth in Boral’s earnings demonstrates the great work that has been done to improve our cost base, grow margins, and efficiently supply market demand, which continues to be strong in Australia and Asia, and is growing in the USA,” Mr Kane said.
Looking to 2016-17, Mr Kane said the company was expecting continuing growth from Boral Australia, the US operations and the plasterboard joint venture with USG of the US.
But he said property earnings “are currently expected to be lower than in the year to June”.
Je said Boral Australia, formed on July 1 by the merger of Construction Materials & Cement and the smaller Building Products division, "will benefit from the strong pipeline of work in East Coast residential markets and the uplift in roads and infrastructure activity, which will benefit more in the second half of FY2017.” Construction materials will see a lift in sales and profits, but building products will report slightly lower earnings “as a result of weaker housing markets in WA and SA.”
USG Boral "is expected to deliver further improvements underpinned by strong volumes in Australia and some volume improvements in Asia together with continued penetration of new Sheetrock products, strong cost and price discipline and JV synergy realisation.”
And Boral USA "should report a further increase in earnings in FY2017 underpinned by continued market growth. At current market growth trajectories of 10% p.a. this would see around 1.26 million housing starts, broadly in line with external forecasters who on average are projecting approximately 1.3 million housing starts in FY2017.”
