Transcript
So the US housing market is actually a really interesting part of the global economies we see here today. So, if you go back to the global financial crisis, new residential construction in the US collapsed. If you look at the 12 years since, we’ve been in this really slow, gradual grind higher. And when we look at the market today, it’s still not back at levels that we would consider normal. Now, over that same period, you’ve had significant changes in demographics. So, the millennial segment, which has been living at home with their parents have obviously been getting older through time, and they’re reaching points now if you look at the numbers and the cohorts, where it’s going to be harder to defer those big life decisions like having families. So, that’s a very supportive backdrop when we think about US housing over the next five to 10 years.
You’ve also got a US mortgage rates, which are basically at all-time lows, which is a strong tailwind to demand. And then you’ve got COVID-19, and a lot of this is still quite fluid. But when we think about the idea that people are spending more time at home, they’re likely reevaluating the type of house that they live in. They’re reevaluating the location like, “Where do I need to live, if I can do more of my work remotely?” And all of that could also be a positive tailwind to US housing over time.
So, there’s always risks. I mean, US unemployment is a key one, but on balance, we stand back and look at US housing overall, and say this is a really positive backdrop and a happy hunting ground for the high-quality companies.
Yeah. So James Hardie is the global leader in the manufacturer of fiber cement cladding. So, if you’re building your house, you’ve obviously got a choice of what you put on the outside walls. It could be brick, it could be timbering in certain markets, or it could be HardiePlank, which is James Hardie’s key product.
When I think about James Hardie as a company, it’s incredibly innovative. So they’ve continued to evolve their products over time. They’ve solved a genuine need and gap in the market. And all of that has helped them drive, drive scale, scale in manufacturing scale in distribution. That leads directly through to a cost advantage. And a cost advantage leads through into higher margins and higher returns. So when I think about the growth outlook, their key competitor is vinyl cladding. So, in the United States, this is another choice alongside brick or HardiePlank. It’s not a product that we know that well in Australia, but effectively, it looks like a flimsy plastic siding or cladding on the outside of your house. As a result it fades over time, it can warp. And, as a result, James Hardie has been able to come in and take a lot of share from this product over time. And there’s still a lot of opportunity ahead. So vinyl cladding is still the standard in a lot of markets in the United States.
When we look at where to from here in the growth outlook, we really respect management and the new strategy they’ve put in place. They’ve got new processes and systems designed to continue that market share gain, become more consistent, in terms of how they take market share over time. And, in addition to share, they’re also focused on manufacturing efficiency. So you’ve got things like trying to run the whole plot network across the US more efficiently, more consistently, and that flows straight through into better operating costs.
So standing back from it, James Hardie, for us, is an A-quality rated company.
