CSR Limited

Strong FY20 Earnings Guidance Driven by Sale of Horsley Park: CSR Limited (ASX: CSR) is engaged in the manufacturing and supply of building products in Australia and New Zealand. Recently, CSR announced the sale of the second tranche of surplus land at Horsley Park, NSW for a consideration of approximately $140 million.

H1FY20 Operational Highlights for the period ending 30 September 2019: CSR reported its six-months financial reports for FY20, wherein the company reported a decline of 4% in revenue at $1,150.1 million, on account of slowdown in residential construction. Statutory NPAT during H1FY19 came in at $68.8 million, down 19% on y-o-y basis. Group EBIT was reported at $113.1 million, down 16% on pcp, due to lower building products result and timing of property transactions. The business reported net cash of $142 million as on 30 September 2019. Currently, CSR has four projects under development, namely Schofields, NSW; Warner, QLD; Brendale, QLD; and Chirnside Park, VIC.


H1FY19 Income Statement Highlights (Source: Company Reports)

Segment Highlights: Building Products EBIT stood at $95.9 million, down 18% on pcp basis on account of slowdown in residential construction activity. Despite the broader market slowdown, CSR’s largest businesses of Gyprock and Bradford delivered steady volumes and earnings, aided by a diversified revenue base across residential and commercial sectors. However, Hebel and AFS earnings were lower as they have significant exposure to the high-density market which was down 38% during the period. In Aluminium segment, EBIT increased by 10% on pcp to $25.4 million, as input costs stabilized during the year.
CSR declared a 50% franked dividend of AUD 0.140000 payable on 10 December 2019. Annual dividend yield ratio of the company stands at 4.85%. CSR has an ongoing share buyback program of worth $100 million, of which $47 million has been purchased to date.

Outlook: As per the guidance, the sale of the 20-hectare site at Horsley Park is expected to generate property EBIT of approximately $90 million. CSR informed that the earnings will be divided into two 10-hectare stages, which are expected to be recorded in FY21 and FY23, respectively. The company expects to deliver FY20 net profit after tax within $107 million to $133 million. For H2FY20, CSR expects lower volumes across its building products segment while on a medium to longer term, demand for CSR’s building products will continue to be supported by housing activity, driven by population growth, high employment and low interest rates. While the business highlighted that 72% of net aluminium exposure for the second half of FY20 is hedged at an average price of $2,763 per tonne.

Stock Recommendation: The stock of CSR is quoting at $4.650 with a market capitalization of ~$2.33 billion. 52-week trading range of the stock stood at $2.620 to $4.790 and currently, the stock is trading close to the peak of the range after making a new 52-week high of $4.790 on 05 November 2019. The stock has delivered positive returns of 20.30% and 41.07% during the last three months and six months, respectively. The stock is available at a price to earnings multiple of 19.750x on trailing twelve months basis. The company will focus on managing business prudently in current environment whilst continuing to invest in medium and long-term growth opportunities. It aims to enhance the customer experience through spending more time at the sites and with the teams and clients. Considering the aforesaid factors, current trading levels, and decent price movement in the last 6 months, we have watch stance on the stock at current market price $4.650, down 1.899% on 05 November 2019, and suggest investors to wait for better entry levels.

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