Daily ShareChat: Boral

Wednesday 27th July 2011

IRESS has reported that Australasian broker Macquarie, has upgraded Boral (BLD.AU) to Outperform, and the broker has a price target of A$4.84. Macquarie says that with domestic macro conditions getting tougher and U.S. housing tracking sideways, the earnings outlook for Boral remains challenging.

However, it suggests that these risks are well flagged and it anticipates that the market will look through these near-term issues and focus more on the turning points in lead indicators.

Macquarie adds that history suggests early stage cyclicals tend to see a significant degree of share price performance well before earnings/end-market activity levels pick up, and that while it is still too early to call the turn in domestic housing markets, the prospect of interest rates remaining on hold over 2011 bodes well for the stabilization and eventual recovery in Australian housing.

Macquarie says that sustained periods of steady cash rates have been associated with outperformance from Boral over the last decade.

Dan Stratful, a broker at IRG, says that “as a supplier of concrete, asphalt and quarry materials to the Australian building and construction sectors, BLD is exposed to the fortunes of the building cycle, however it also supplies these products to the infrastructure markets which is a little more buoyant due to government expenditure”.

In the full year 2009-10 result BLD reported strong cash flows and a capital raising of $490m which reduced gearing to 25% at years end. The full year result was dragged down by Boral USA, as the USA division reported full year revenue at US$321m, down a sharp 21% on the prior year (2008-9: US$406m).

The USA EBIT result worsened to a loss of US$91m. Offsetting this was a strong result from the Building Products division which reported full year revenue of $1.20b, 6% above the prior year while EBIT jumped 90% to $101m.

Boral Construction Materials division saw full year revenue of $2.11b down 6% and EBIT at $201m was 13% lower. Stratful says that “BLD has completed a six month review of its businesses which has resulted in major strategic and organisational changes. This will see it continue to invest in the US market and its core Australian construction materials, cement and building products markets”.

BLD is a cyclical stock that may appeal to growth investors.

Boral today traded at $4.25.

Story edited by: Dan Stratful

Source: Iress

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