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James Hardie Industries

Friday 9th September 2011

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Morgan Stanley initiates coverage of James Hardie Industries (ASX: JHX) at Underweight with a price target of A$5.25 a share. Morgan Stanley states that "despite JHX's high-quality business model, we expect macro volatility to be a headwind to earnings growth," it says, adding the key issues for the company are the outlook for the U.S. housing market, volume growth challenged in a price-sensitive market, and weakening conditions in Asia.


JHX is one of the largest manufacturers of fibre cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand and the Philippines.


For the year ended 31 March 2011, JHX reported a net loss of US$347m from a net loss of US$85m a year earlier. The results included a charge of US$32.6 million arising from its corporate structure simplification and an unfavourable asbestos adjustment of US$85.8 million, which was primarily attributable to movements in the value of the Australian dollar against the US dollar.


JHX said its results were a reflection of the very weak US housing market, partially offset by the strong performance from the Asia Pacific businesses. It also benefited from stronger Asia Pacific currencies.


Looking ahead to the year ending 31 March 2012 (FY12), JHX reports activity in the US residential housing sector is expected to remain relatively flat in the construction and the repair and remodel segments. “Execution of our growth strategy will remain the key focus for FY12. As the US housing market is likely to remain flat, the emphasis will be on optimising manufacturing efficiencies, while still driving strategic initiatives that have proven to be successful, such as ColorPlus and the repair and remodel segment.”


“We will continue to invest heavily in product development and market initiatives, concentrating on those areas that have gained traction and are delivering strong financial returns, with the aim to strengthen our overall market position. In summary, we are facing another challenging year in FY12, with increased pressure from both higher input costs and the weak US housing market, but we are confident that we will continue to generate above industry average returns and growth”.


Contact IRG on 0800 437 8489

**A disclosure statement is available, on request and free of charge by calling 0800 437 8489.


Recommendation sourced from the IRESS software trading platform



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