Stocks’ Details

Boral Limited (ASX: BLD)

Optimising supply chain to lower costs and improve customer service - Boral, one of the key suppliers to Australia’s booming infrastructure and strong residential and non-residential construction markets recently signed agreements with Mirvac to include an additional 278 hectares of land in the development arrangements, for Boral's Donnybrook property in Victoria that further enhanced Mirvac's Olivine master planned estate. The Group acquired the Donnybrook site over 15 years ago as a potential hard rock quarry. Under these new arrangements Mirvac will now facilitate the urban development of the 465-hectare site over a multi-decade period. It is expected that this transaction will contribute about $9 million of EBITDA to Boral in FY2018, and approximately $9-$14 million per annum of EBITDA through to FY2021, and again between FY2025 and FY2027. Significant earnings are expected from FY2028 to FY2037 as the land is being progressively developed. It also expects property earnings to be at the high end of its guidance range of $55-$65 million of EBITDA for FY2018. Due to regular divestments (and replacement) of land at the end of operational life, earnings from property sales and development will continue to contribute to Boral Australia’s results. The Group will release its full-year FY2018 result on 29 August 2018.


Potential Development and divestment opportunities (Source: Company Reports)

It is delivering transformational growth in North America through successful integration of Headwaters acquisition with substantial synergies and through market recovery and innovation. It continues to focus on costs and on operational improvements through continuing operational excellence initiatives, implementing Supply Chain Optimisation program and by leveraging digital innovation opportunities for cost and safety. It is maintaining or improving its market positions, by obtaining a fair price to achieve a return on investment that will exceed the cost of capital through the cycle. It completed internal and external benchmarking and identified 5 to 10 per cent of supply chain opportunity over 3 years. Including Property, Boral Australia is now expected to deliver improved earnings growth with an expected increase of approximately 10-20 per cent in FY2018 compared with FY2017, on both an EBITDA and EBIT basis. The stock declined by 16.33 per cent in last three months but started rising up marginally in last five days and was up 1.43% on June 05, 2018. Given the group’s potential, vertical integration over supply chain, better operations and exposure to mitigate energy related costs, and increased infrastructure spending across Australia, we maintain a “Buy” at the current market price of $6.39.
 

Adelaide Brighton Limited (ASX: ABC)

Decline in Earnings and Margins - Adelaide Brighton, a manufacturer and distributor of cement, and cementitious products, lime, premixed concrete, aggregates, sand and concrete products continues to deliver strong returns to shareholders while, at the same time is continuing its long-term strategy to be a more integrated player and therefore is at a lower risk. It has diversified the operations through growth in Concrete, Aggregates and Concrete Products alongside its traditional strength in Cement and Lime. At the full year results in late February, the Board declared and paid an increased final ordinary dividend of 12.0 cents per share. This took the total for ordinary dividends paid in 2017 to 20.5 cents per share, fully franked, which is a 0.5 cent increase on the prior year. Meanwhile, one of its directors,Martin Brydon acquired 177,112 shares on 22 May 2018 in pursuant to exercise of the exercisable portion of the 2014 Award under the Adelaide Brighton Ltd Executive Performance Share Plan and disposed of 166,408 shares in May 2018. Adelaide Brighton has the proven capacity to deliver growth and returns for shareholders over time driven by the success of its long-term strategy to build a geographically diverse, vertically integrated construction materials company.


Dividend and EPS Growth Trend (Source: Company Reports)

In 2017, full-year revenue grew by 11.7 per cent to a record for Adelaide Brighton. This was 10 per cent above the previous high in 2015 and achieved despite softer demand in Western Australia and the Northern Territory. Earnings per share declined marginally to 28.0 cents but underlying earnings per share increased 5.2 per cent. Due to few acquisitions, net debt increased by $83.1 million and gearing rose to 29.8 per cent, still at the lower end of its target range of 25 – 45 per cent. Moreover, it was observed that demand declined further across the Northern Territory, although regional infrastructure projects provided some offset. While cement prices increased ahead of inflation in almost all markets, its cement margins were a little lower in 2017. The Group is expecting that proceeds from the sale of land in the next 10 years could help realise value in excess of $100 million. The stock was up by 1.84 per cent in last one month and by 1.07 per cent in last five days. It looks “Expensive” at the current market price of $6.62 and can be avoided looking at the trading levels given a bit lower upside momentum compared to BLD.
 

Comparison of Basic Normalised EPS (Source: Thomson Reuters)

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