Taking a brick to the business
The restructure of Boral (ASX:BLD) has taken a toll on the businesses revenues and margins, as A$5,5b of non-core assets are divested with the company returning a significant part of the capital to investors including the special dividend of $0.07. The current share price remains mid range between the lows of March 2020 and the highs of July 2021.
The Daily chart of Boral displays the current daily support level at $2.50 with current price movement retesting this level. Currently price remains below the 200 day and 20 day simple moving average.
To offset the current inflationary cycle Boral has implemented a strong pricing discipline to mitigate increasing costs incurred for FY22. Several strategic purchases have occurred during the reporting period, namely, the acquisition of Hillview Sands in Victoria for A$30m and strategic land purchases around the Badgerys creek area, the site of the now under construction Sydney airport.
On the current continuing operations FY22 revenue is reported at A$2.9b an increase over FY21 of 1%.
Source Boral (ASX:BLD)
The discontinued operations of North America and the Australian building products added A$952m profit, the significant part of this being distributed to shareholders. Boral completed a $3 billion return of surplus capital to shareholders by way of a $2.65 per share capital return and 7 cents per share unfranked dividend. The resulting final operating cash flow of $261 million decreased from $654 million in the prior year, reflecting a lower EBITDA due to a part-year contribution from the divested Boral North America and Australian Building Products businesses. This now leaves the company to focus on the Australian operations with the building products timber and roofing and masonry businesses now on sold, the company is currently showing a stronger return with the Roads Highways subdivisions and bridges, (RHS&B) activity growing 14%, other engineering up 4%, non-residential up 2%, and overall residential activity up 2%.
The current structure now centres around the RHS&B Asphalt project work, including the Pacific Highway upgrades and the Deception Bay Road interchange in Qld and the West Gate Tunnel in Victoria and the Tonkin Gap project in WA is now expected to ramp up in FY23.
Source: Gooding Davies
Other major concrete projects included Snowy Hydro and Sydney Metro Linewide in NSW, and the West Gate Tunnel project in Victoria.
Currently, work in the pipeline includes the recently secured but not yet commenced Sydney Metro West – Central Tunnels, Sydney Metro West – Western Tunnels. Other government work now includes the Royal Australian Navy project HMAS Albatross south of Wollongong NSW.
Source: RAN
This now places Boral (ASX:BLD) into a unique position, with Government contracts being the capital expenditure tool used to support the Australian economy should we move to an economic slowdown. Other work in construction materials in support of major projects was 3.4% compared to 3.1% in FY21. Detached housing and alterations and additions activity increased 11% and 8%, respectively, while multi-residential activity declined by 13%.
The current and hopefully short-term headwind for this type of work is the weather and we note in NSW, where Boral has its strongest operating position, construction activity over the same period declined by 3%, reflecting the impact of shutdowns in Greater Sydney area earlier in the year from exceptional rainfall. Shutdowns in the early part of 2022 saw large parts of the construction industry unable to operate, impacting Boral’s volumes for the duration, and 1H-22, as work returned to normal activity levels.
The Monthly chart of Boral (ASX:BLD) shows the resistance level of $4.80 and support level of $1.23, with price remaining mid point of the range above internal support of $2.26 and resistance of $3.10.
The delays in delivery of materials to customer sites in many regions, caused operating inefficiencies and additional operating and repair costs and these operating issues take time to recover. Overall, the activity across end-market segments increased by 9% in Queensland, 4% in Victoria, 13% in South Australia, and 12% in Western Australia.
Summary
Boral (ASX:BLD) has a solid workbook of projects in its Australian enterprise, however the company like many others in the building industry face headwinds from unexpected weather events along with the current supply chain constraints for raw materials. We believe the current transformation from divesting the North American assets has reduced the headline risk in this current climate of rising interest rates and inflation.
For members with exposure we maintain a HOLD recommendation.
