Boral Ltd (ASX: BLD)

BLD Details
 
Encouraging outlook for FY18: Boral Ltd, in the Annual General Meeting, has highlighted the completion of US$2.6 billion acquisition of Headwaters Incorporated in North America; formation of Meridian Brick, which is a 50: 50 joint venture with Forterra; divestment of the 40% stake of Boral CSR Bricks and exiting brick manufacturing on east coast of Australia; and continued reinvestment in key quarry reserves. The company is investing in innovation to respond to a changing world and help shape the future, which is clearly evident through success of USG Boral’s Sheetrock. Going forward, Boral Australia is expected to witness an increase in energy costs at the upper end of $15-$20 million estimated range, while the Property earnings in FY18 are currently expected at lower end of historical range ($8m–$46m), skewed to 2H with a high single-digit EBIT growth. In FY18, for USG Boral, the profit is expected to grow at a high single-digit growth rate, with Sheetrock to deliver price, volume and cost benefits across all markets and 2H improvements expected from Indonesia and Thailand businesses, while softer activity is forecasted in Australian and Korean residential construction markets.
 
For Boral North America, there is an expectation of significant growth in EBIT in FY18 from the full year contribution of Headwaters coupled with US$30–35m of year 1 synergies. Meridian Brick JV is expected to contribute an earnings uplift from market growth and synergies. There is an assumption for delivery of market growth forecasts of about 8% in housing starts (to 1.29 million) with5% increase in US infrastructure activity, 12% growth in Non-residential and 6% growth in Repair & Remodel. Meanwhile, BLD stock has risen 16.2% in last six months as on November 02, 2017. The stock though trades at high levels, the potential at the back of infrastructure boom makes the stock being considered a “Buy” at the current price of $7.43
  

Genworth Mortgage Insurance Australia Ltd (ASX: GMA)

GMA Details
 
Rising mortgage delinquencies: Genworth Mortgage Insurance Australia reported for its third-quarter(ended 30 September 2017) profit plunging by over 31% with Net Profit After Tax (NPAT)figure of $32.1m while the underlying NPAT was $40.5m. The New business volume (as measured by New Insurance Written (NIW)) dropped by 9.8% to $5.5bn in 3Q2017 against $6.1bn in 3Q2016. Further, about $0.8bn of NIW was stated to be in bulk portfolio transactions. Investment income of $15.6m included a pre-tax mark-to-market unrealised loss of $12.0m. The group otherwise continues to actively manage its capital position and the value of its investment portfolio was reported to be $3.4bn (89% of which continues to be held in cash and highly rated fixed interest securities) as at 30 September 2017.
 
The group is now indicating increasing issues in regional parts of the country withimpact from mounting mortgage stress at the back of subdued wage growth and a low inflation environment. Genworth expects elevated mortgage delinquencies in various regions for the remainder of 2017. The overall delinquency rate has moved up to 0.50%, up 3 basis points from the same period last year for the group with challenges prevailing in Queensland and Western Australia.The group also faced challenges owing to the Australian Prudential Regulation Authority’s move on risky loans and mortgage interest rate increases.Nonetheless, the group aims to target an ordinary dividend payout ratio range of 50% to 80% of underlying net profits after tax. We maintain a “Hold” at the current price of $2.81
 

Delinquency Rates (Source: Company Reports)

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