S&P 500 was down 0.65% to 1828.75. U.S. stocks fluctuated, after erasing an earlier rally, as the International Monetary Fund warned of risks to the global economy and investors awaited minutes of the Federal Reserve’s latest meeting. The Fed said cuts to bond purchases should continue in “the absence of an appreciable change in the economic outlook,” minutes of the January meeting showed. As per the IMF advanced economies, including the United States, must avoid pulling back stimulus too quickly given the weak global economic recovery and recent market volatility highlights key risks in some emerging markets. Capital outflows, higher interest rates and sharp currency depreciation in emerging economies remain a key concern and a persistent tightening of financial conditions could undercut investment and growth in some countries. The IMF said there was scope for better cooperation on unwinding unconventional monetary policy, such as wider central bank discussion of exit plans, and urged the Fed to beware of ending its support too quickly.


Daily S&P 500 (Source – Thomson Reuters)

S&P ASX 200 was up 15.4 points to 5408.2. SPI futures are down 16 points. A number of strong half year company results and the news that some of Australia’s largest companies have raised their dividends drove the shares higher. Company reporting season delivered enough positive news to buoy the market. Woodside Petroleum, Wesfarmers, Suncorp Group and Fortescue Metals joined the companies that have delighted the yield hungry investors by increasing their interim dividend. Top performers from yesterday are mentioned below:-

Stock Code	Company Name	Price	Change
SEK	SEEK LIMITED	$15.70	17.78%
NST	NORTHERN STAR RESOURCES LTD	$1.18	8.26%
NWH	NRW HOLDINGS LIMITED	$1.49	3.83%
DCG	DECMIL GROUP LIMITED	$2.05	3.80%
GEM	G8 EDUCATION LIMITED	$4.10	3.80%

Daily S&P ASX 200

Stock of the Day – BORAL

Boral is among the handful of dominant building materials players in Australia. It has an integrated business from digging rocks out of the ground to producing more value add cement, concrete, bricks, roof tiles, windows, timber and plasterboard products. It is a market leader, or close second or third in all sectors positions and we expect it will maintain that.

Demand for construction and building materials is the primary determinant of earnings. Capacity is currently being cut in building products to improve profitability, with activity unlikely to recover to past peaks. Relatively high barriers to entry in the aggregates and cement business led to favorable pricing and adequate margins and returns, as opposed to building products where high fixed costs and little product differentiation can make the division unprofitable. Boral is overvalued. The share price remains vulnerable to slower than expected recovery in construction activity.

Losses in the U.S and building products have increased Boral’s dependence on Australian construction materials – 90% of earnings before interest and taxes or EBIT before losses and unallocated expenses. While demand has slowed on weaker new housing activity, added pressure comes from growth in the use of alternative building products such as fibre cement and aluminum roofing. These products may offer advantages such as price, ease and pace of installation, architectural appeal or weather resistance.


BORAL Daily Chart

Boral is exposed to a cyclical industry and only moderate earnings growth can be expected over the long term. The high fixed cost base exposes earnings to swings in volumes and price. Margin damage can be swift and significant. Returns on equity are below average reflecting high levels of investment in fixed assets which can impact free cash flow and dividend payout ratio. We think that BORAL is expensive at the current price and would monitor the stock for further changes.
 

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