One Construction Materials Stock with Expansion Plans – JHX
James Hardie Industries PLC
JHX Details
James Hardie Industries PLC (ASX: JHX) is the world’s largest producer and marketer of high-performance fiber cement siding and backerboard. The company is also a market leader in Europe for fiber gypsum products.
Results Performance for Q3FY22 (For the Quarter Ended 31 December 2021)
- The company continued to deliver growth above market and strong returns in Q3FY22. Global net sales increased by 22% driven by global volume growth of 9%, as all three regions continued to deliver on the global strategy of driving high value product mix penetration.
- Global Adjusted EBIT grew by 22% to US$204.1 million, with an Adjusted EBIT margin of 22.7% supported by sustained operational improvements and the delivery of a high value product mix, offset by high inflation and its continuing reinvestment in growth initiatives.
- Adjusted net income increased by 25% to US$154.1 million during Q3FY22.
- Generated strong operating cash flow of US$553.3 million in the first nine months of FY22 underpinned by continuous improvement in its LEAN manufacturing performance, as well as robust profitable organic sales growth and the integration of its supply chain with its customers.
Source: Analysis by Kalkine Group
Recent Update
- On 23 March 2022, the company announced the resignation of Mr Dean Seavers as a non-executive director of James Hardie Industries plc effective 21 March 2022 (US time).
- On 17 March 2022, JHX has entered into an agreement to purchase land in Melbourne, Victoria, Australia, in a move towards sustained capacity expansion. This greenfield site is part of the group’s global strategic capacity expansion program and would facilitate the company to further cater to the strong demand for its high value building solutions in the Asia Pacific region.
Outlook
Considering the sustained, robust execution of the global strategy across all three regions along with the expectation for continued residential and market growth in the USA, the company has increased its adjusted net income guidance for FY22 to between US$620 million and US$630 million from US$605 million and US$625 million. Further, the company has provided FY23 adjusted net income guidance range of US$740 million to US$820 million. Besides, JHX is progressing towards delivering a transformational global capacity expansion program that signifies its confidence in its ability to drive growth for its high value products. This will be achieved through further penetrating into new and existing markets by way of innovation and marketing directly to the homeowners.
Key Risks
The company is exposed to risks and uncertainties associated with the Covid-19 pandemic. It is susceptible to any slowdown in the markets it serves that could lead to decreased demand for its products and, in turn, could impact its sales and operating income. Significant and higher competition in the building products industry could adversely affect its business.
Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation
The stock has been valued using Price/EPS multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). In addition, a slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average), considering its strong financial results in Q3FY22, robust cash flow generation as well as decent outlook.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Considering the factors above, and decent outlook, we give a “Buy” recommendation on the stock at the closing market price of A$43.110 per share, down by 1.486% on 25th March 2022.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined:-
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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