Shares in building materials group, CSR have tumbled in the wake of comments by the company that the home building market may have peaked.
Shares fell 11.8% $4.56, off the earlier lows around $4.50 – a drop of more than 12%.
"While residential construction markets appear to have peaked from recent record levels of activity, construction currently underway will support demand for CSR’s products in the year ahead," the company’s chief executive, Rob Sindel said following the release of full-year earnings.
"Lead indicators including building approvals are pointing to a softening in activity in residential markets," the manufacturer said in a statement, but the "non-residential market remains benign".
It was a curious reaction because if you had been reading the recent run of building approvals and housing finance data, plus comments from the Reserve Bank, and APRA, you would have come to a similar conclusion.
But also weighing on shares were profit and dividend which came in slightly below expectations.
Net profit rose 25% to $177.9 million, but was lower than the $185.9 million average analyst estimate, while the dividend of 13 cents didn’t quite match expectations of 13.5 cents. But the final is a fat 26 cents, up 11% on the previous year.
That wasn’t a big miss, further telling us that investors are gun shy at the moment.
CSR is among Australian companies Boral and Brickworks are two others to ride the local housing boom has been driven by record-low interest rates and a global hunt by investors for yield.
The company’s share price has surged more than 50% the past eight months. However, developers and building-materials companies have recently faced a softening market after authorities tightened lending rules to curb speculation by property investors. Official data this week showed residential building approvals fell by 13.4% in March from the previous month, and around 20% in the past year.
CSR said earnings before interest, tax, depreciation, and amortisation from the supply of building products rose to $202.8 million, a rise of 21% from $167.6 million a year earlier
“The successful execution of our strategy has helped us capitalise on the strength of the construction markets in Australia,” Managing Director Rob Sindel said. “This has led to strong growth in our Building Products’ earnings, which have more than doubled over the past five years.”
However, CSR said its aluminium division’s annual ebitda fell to $93.1 million from $104.1 million. CSR owns a minority stake in Tomago aluminium joint venture in eastern Australia, which also counts Rio Tinto and AMP as shareholders.
CSR said a sharp improvement in aluminium pricing over the past six months had enabled the company to lock in hedges covering around 80% cent of its net aluminium exposure in the 2018 fiscal year.
That helps to offset higher prices for power supply to the Tomago smelter under a new contract that takes effect in November. CSR said yesterday those higher power charges would add $250 a tonne to Tomago’s production costs.
