CSR Ltd

CSR Details

CSR Ltd (ASX: CSR) is a leading building products company in Australia and New Zealand.

FY21 Results Performance (For the Period Ended March 2021)

Trading Revenue Fell by 4%:  The company has registered 4% YoY decline in trading revenue to $2,122.4 million due to H1 slowdown in the residential construction as well as lower aluminium prices.

Uptick in Profitability: Group’s EBIT during the period rose 10% YoY driven by growth in building products and higher earnings from property. Further, statutory net profit after tax increased by 17% YoY to $146.1 million.

Healthy Operating Cash Flow: It has recorded a strong operating cash generation of $253 million, up 3%.

Key Data (Source: Company Reports)

Outlook

In building products, with regards to Detached, it was mentioned that activity would be helped by the HomeBuilder commencements and the extension of the timetable could extend the pipeline throughout calendar 2021 and 2022. In Aluminium, it was mentioned that, based on the significant hedge positions, EBIT for YEM 2022 is anticipated to be between $32 Mn to $40 Mn, assuming all the other revenue as well as cost areas (including coal costs) remain unchanged.

Key Risks

The company’s business is exposed to the risks of fluctuations in the global US dollar price for aluminium and currency movements. Also, ~70% of the company’s total revenue is garnered from the products as well as services supplied into the construction sector of ANZ which is impacted by the macro-economic factors.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering higher ROE and higher ROIC.

For the purposes of relative valuation, we have taken peers like Resolute Mining Ltd (RSG.AX), Adbri Ltd (ABC.AX), to name a few. The stock has made a 52-week low and high of $3.28 and $6.38, respectively. Also, the stock is trading towards the 52-week higher levels.

Considering the above factors, we give a “Buy” recommendation on the stock at the current market price of $5.450 per share, up by 2.830% on 22^nd July 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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