Boral Limited

BLD Details
· Concerns over Headwaters acquisition: Boral Limited (ASX: BLD) stock disappointed investors and fell over 18.9% on November 24, 2016. Concerns over the group’s acquisition of Headwaters and Boral’s funds raising for this acquisition hurt the stock sentiment. Boral is raising over A$1.58 billion via Institutional Placement and Entitlement Offer. The group is acquiring Headwaters Incorporated for US$24.25 per share in cash, which is over ~US$2.6 billion (~A$3.5 billion) enterprise value. Boral believes that this move would boost their growth and generate above cost of capital returns through market cycles. This acquisition could also complement their US businesses, delivering an overall revenue of around US$1.8 billion, more than doubling Boral USA. Accordingly, Boral’s US fly ash business, would speed-up the development of their light building products platform while diversifying the group in the rising US construction markets.  Consequently, Boral estimates EPS to be accretive on a pro forma FY2017 NPATA basis. The group forecasts major synergies of over US$100 million per annum within four years of closing. On the other hand, even though management reported a cautious pro forma net debt to EBITDA of ~2.5x post the transaction, we believe the acquisition pressure on their balance sheet could continue. Moreover, some extent of uncertainty prevails in the US market post Trump win.

· Recommendation: Boral is trading at a higher P/E and we give an “Expensive” recommendation on the stock at the current price of – $ 4.99 

Headwaters Incorporated presence (Source: Company Reports)

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