Investors marked down CSR shares yesterday despite the building products reporting what seems to have been a solid 2017-18 result, and a small rise in final and annual dividend.
The shares closed down 4.4% at $5.41 after CSR reported a 16% increase in net profit after tax (before significant items) of $212.7 million for the year ended March 31. the shares hit a day’s low of $5.32.
CSR shares are up more than 18% in the past year, so yesterday’s sell off could be investors taking profits in the belief that this is as good as it gets for the company with activity in home building and construction looks like weakening – but not for construction and infrastructure spending.
After significant items, net profit after tax was $188.8 million, up 6%.
Earnings before interest, tax and significant items (EBIT) rose 9% to $323.8 million.
Directors said this lift in earnings was driven by growth from Building Products, which delivered a record EBIT of $214.1 million and increased Property earnings of $47.8 million, up from $15.0 million in 2016-17.
Total dividend was up a cent or 4% to 27.0 cents a share with a final dividend of 13.5 cents (same as the interim) which was uph alf a cent from last year.
“CSR’s Building Products business continues to grow as we capitalise on the strength of the residential construction market in Australia. We have also increased our exposure to commercial markets which are forecast to grow over the next few years. Our strategy to improve operational performance has ensured our EBIT margins remained stable, despite a 12% increase in energy costs this year,” CSR Managing Director Rob Sindel said in yesterday’s statement.
“Gyprock delivered another strong result, with investment in four new Gyprock Trade Centres helping to maintain its market-leading position. Bradford continued to grow earnings across its range of insulation and energy efficiency products while PGH Bricks also increased earnings despite significantly higher gas costs. Hebel autoclaved aerated concrete increased earnings with market share growth in both the detached and multi-residential market.
“Viridian’s EBIT of $3.5 million was down from $7.0 million in the previous year due to operational issues at the new commercial factory at Ingleburn, NSW, while energy costs increased by $4 million. This was partly offset by improvement across the other Viridian businesses as it took advantage of demand for higher margin insulated glass products.
“Aluminium EBIT of $79.5 million was down from $93.1 million as the higher realised aluminium price and increased production at the Tomago smelter was offset by increased raw material costs and the significant step-up in energy costs experienced during the last five months of year. We have also increased our hedging position following the recent increase in aluminium prices with 74% of our net exposure hedged for YEM19 and 70% in YEM20, “ he added.
CSR said it ended the year with net debt of just $14.3 million.
Mr Sindel said this gave the company “capacity to continue to invest in additional growth opportunities and property projects to improve shareholder returns.” That’s a hint of perhaps a share buyback, but it clearly wasn’t clear enough for investors yesterday who sold the shares.
“The $75 million expansion of the Hebel factory is due for completion in March 2019. Additional property investment is expected this year as we accelerate the development of major projects in western Sydney as the market for industrial sites and residential property remains strong,” Mr Sindel added.
Looking at the outlook for the year ending 31 March 2019 (YEM19), CSR confirmed:
- Building Products and Viridian – Recent building approvals remain strong with detached housing at its highest level in two years. This supports the current level of activity for the year ahead. Viridian’s operational performance in Australia and New Zealand has improved in recent months with the business on track to improve earnings in the year ahead.
- Currently 74% of net Aluminium exposure for YEM19 is hedged at an average price of A$2,590 per tonne (excluding ingot premiums) as of 30 April 2018. Earnings will be impacted by the full year effect of higher power related costs.
- Two Property transactions were announced in the first week of YEM19 resulting in EBIT of approximately $37 million. This included the completion of Stage 5 at Chirnside Park, VIC and the sale of the 10-hectare surplus industrial site at Horsley Park, NSW which is expected to be recorded in the second half of the year.
