The big East Coast wet has taken a chunk out of Boral’s earnings, sending the shares down 7% at one stage on Tuesday in what looks like to have been a bit of an overreaction.
Boral, which is now 70% controlled by Kerry Stokes’ Seven Group, told the ASX that its earnings have been adversely impacted by lower sales volumes as a result of the exceptional rainfall in New South Wales and Queensland.
It has also taken a hit from the sharp increases in fuel and coal prices – news that saw the shares fall to a year low of $3.21 before bouncing to be around $3.33 (down 3.4%)
Boral, which is now controlled by Kerry Stokes’ Seven Group, says it now expects underlying earnings before interest and tax (EBIT) for its continuing operations (excluding Property) in the current fiscal year to be between $145 million and $155 million, assuming no further extraordinary rain events.
“The impact on sales volumes of the extreme rainfall across New South Wales and Queensland in late February and early March have adversely impacted Boral’s earnings by around $23 million,” Boral CEO, Zlatko Todorcevski, said in the statement to the ASX
“The exceptional weather conditions have prevented us from delivering products to our customers in many regions and caused significant production disruptions to our operations.”
He also said the “unusually extreme and rapid increases in the price of coal and diesel” have had an impact on earnings.
He said this cost escalation is not expected to be recovered by the company’s product price increases early this year.
Boral says its exposure to coal prices is unhedged for the current June half year and its hedging on diesel usage expires next month.
“Elevated fuel prices are also exacerbating supply chain constraints, which as disclosed at its first half of 2021-22 results are expected to continue to impact in the second half of 2021-22,” it says.
At the half-year results in February, Boral told shareholders to expect second-half revenue higher than the first half, but did not provide a dollar figure.
The market reaction ignored the future benefit Boral will get from extra business in the rebuilding of thousands of homes, shops and infrastructure in the flooded areas, especially in the northern rivers are of NSW and southeast Queensland.
Roads, bridges, culverts will all need rebuilding or replacing in places and as a major cement and concrete maker, Boral should get its fair share and a bit more.
The higher coal and diesel prices will only be recovered over time, but being 70% controlled by the Stokes family means the impact will be immaterial in the scheme of things.
