Boral Limited

Surge in revenue driven by strong sales in Australia and North America: Boral Limited (ASX: BLD) is an Australia-based building product and construction material group. It operates through its three segments which include Boral Australia, USG Boral, and Boral North America. The company offers infrastructure and commercial building solution along with providing a wide range of products and services required for construction.
 

Financial Performance (Source: Company Reports)
 
Consolidations, joint ventures, divestitures, acquisitions are among key contributors to the massive transformation over the past five years.The sales revenue of $5.87 billion in FY18 was up 34% on the prior year of $4.38 billion, driven by growth in Boral Australia and Boral North America segments. The underlying profit after tax was $473.2 million in FY18 vs. $342.7 million, an increase of 38.0% Y-O-Y. This improvement was driven by a 49.7% increase in EBIT, offset by higher interest and tax expense. Among the key ratios, current ratio and asset turnover stood at 1.75x and 0.61x in FY18 compared to 1.20x and 0.54x in the previous year, implying an increase of 45.4% and 11.6% respectively. The higher current ratio was primarily driven by lower short-term borrowings and tax liabilities Y-O-Y.

Look at Long-term Strategy of BLD: Going forward, the company has a long-term strategy of sustainability and value creation.The group wants to shift towards a lightweight, innovative and more variable cost building products and materials base from energy and resource-intensive, high fixed cost manufacturing.

The stock is currently trading at $4.930 with a PE multiple of 13.160x and a market capitalization of $5.8 billion. The stock generated a YTD return 2.06% and a return of 3.34% over the last one month.

On the back of strong financials of the company coupled with the acquisition of Headwaters and continued focus on cost improvements, the company is poised to achieve growth going forward. Hence, we maintain our “Buy” recommendation on the stock at the current market price of A$4.930 per share.  
 
 

Downer EDI Limited

Significant revenue growth Y-O-Y: Downer EDI Limited (ASX: DOW) belongs to the industrial sector and provides comprehensive engineering and infrastructure management services to its clients. It serves various sectors including public and private Minerals & Metals, Oil & Gas, Power, Transport Infrastructure, etc.

Recently, the group disclosed that it was selected by the Government of New South Wales to build the first stage of the Parramatta Light Rail Project in a 50:50 joint venture with CPB contractors and from this contract Downer is expecting to generate revenue of around $420 Mn.


Consolidated Statement of PL and OCI (Source: Company Reports)

The revenue of the company stood at $12,016.6 million in FY18 compared to $7,267.1 million in FY17, up by 65.4% approximately, driven by primarily contribution from the construction sector Y-O-Y.The company’s profit after tax stood at $71.1 million in FY18 vs. $181.5 million in FY17, a decrease of 60.8% approximately, driven by a significant increase in operating expenses. Among the key ratios, the asset turnover and the current ratio stood at 1.56x and 1.09x in FY18 compared to 1.23x and 0.96x in FY17, an increase by 26.8% and 12.9% on Y-o-Y basis.

What DOW is Targeting: Going forward, for FY19, the company is targeting a consolidated net profit after tax and before amortization of acquired intangible assets of $335 million before minority interests. The company focuses on driving improvement in its existing business, investing in sustainable growth and adapt as per the needs and preferences of customers and industry.

The stock is currently trading at $7.270 with a PE multiple of 59.88x and a market capitalization of ~$4.31 billion. The stock generated a YTD return 8.38% and returns of 2.99% and 13.30% over the last three months and one-month period, respectively. Based on the foregoing along with the latest Parramatta Light Rail Construction (PLR) contract in JV with CIM, we reiterate our “Buy” recommendation on the stock at the current market price of $7.270.
 

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