Shares in building materials supplier CSR jumped to near four month highs yesterday after it confirmed that it was still riding the building boom.
The company has reported a series of solid results in the past couple of years as the housing and apartment construction boom has continued. Boral, Brickworks and James Hardie are also running with the surge with their sales still solid and earnings buoyant.
Yesterday CSR revealed that first-half underlying profit rose 12% to $103.1 million on the back of the still strong growth in residential construction activity.
The company said statutory net profit for the half year had jumped 48% to $114.5 million in the six months to September 30, after a tax refund following its divestment in Sucrogen.
CSR’s revenue was also up, rising 8% to $1.24 billion in the period.
The company will pay an unfranked interim dividend of 13 cents per share, up from last year’s 11.5 cents.
As a result the shares jumped more than 8% to end at $3.82, after being as high as $3.92, just under its most recent high of $3.96 in late July.
The solid rise was maintained despite another 1% plus sell off on the ASX 200 yesterday.
CEO, Rob Sindel said, “Our strong cash flow provides capacity to invest in additional growth options as well as fund the $150 million share buyback over the next 18 months.” That mention of an existing buyback got the analysts and some investors all hot and bothered about a new round of capital management.
For example, RBC analysts told clients “Strong balance sheet means capital management will continue.. this is a positive, as it concurs with our view that the recent brick JV buyout would not preclude further progress on the announced buyback. We see potential for further initiatives beyond the current buyback given strong cash flows and very low gearing levels.”
Citi analyst Simon Thackray called it a “stellar result", with first-half group earnings before interest and tax of $165 million well ahead of Citi’s forecast of $147 million.
Thackray told clients that CSR’s 13 cents a share interim dividend was also a positive surprise, along with the company’s outlook statement. Mr Sindel said in yesterday’s statement “The overall strength in the residential construction market across the east coast has supported the growth in Building Products’ earnings and margins”.
“While detached housing construction remains robust, high-rise apartment approvals are showing signs of slowing across Australia. CSR is now more resilient to these changes in the building cycle as a result of our strategy over the past few years to strengthen our core businesses and invest in new market segments.”
CSR consolidated its position in PGH Bricks on Monday by the acquisition of Boral’s 40% stake in the Boral CSR Bricks joint venture.
“PGH Bricks has exceeded expectations over the last 18 months. By taking full ownership, we will benefit from new opportunities to drive operational efficiencies as well as accelerate future property development projects,” Mr Sindel said in the statement. But as enthusiastic as the brokers were about the chances of more capital management moves, investors were more encouraged by the immediate – a confident outlook for the rest of the financial year.
CSR said he expects that group net profit after tax (before significant items) for the eyar to March 31, 2017 “ ill be at the top end of the current range of analysts’ forecasts of $154 million to $184 million (before significant items).”
The company said its key building products business is "expected to deliver year-on-year earnings growth bolstered by continued solid activity in residential construction on the east coast of Australia. Given current construction indicators and longer lead times from approval to construction, CSR expects demand for its building products to remain at current levels over the near term.’
Its Viridian glass business “is expected to increase earnings following the benefit of recent acquisitions combined with improvements in its commercial market position.”
The aluminium business currently has 78% of the net aluminium exposure for the second half of the year hedged at an average price of A$2,310 per tonne (excluding ingot premiums) as of 31 October 2016. Ingot premiums, which are paid to producers above the LME aluminium price, appear to have reached a floor at US$75 per tonne (Main Japanese Port ingot premium). “
And second half property earnings "will be largely derived from settlements at the Chirnside Park, Victoria residential development in addition to other transactions under negotiation. As a result, Property EBIT is expected to be $20-25 million, subject to the timing of transactions.
