Boral Limited

BLD Details

Recent Updates: Boral Limited (ASX: BLD) is involved in the manufacture and supply of construction materials and building products in North America and Australia.

• On 21 December 2021, BLD issued ~1.55 million performance rights due to a lapse of conditional right to shares.
• On 17 December 2021, Director Mark Johnson, purchased ~1,000 direct shares and 9,000 indirect shares in an on-market transaction at $6.02 per share. In addition, Director, Zlatko Todorcevski increased his shareholding to ~190,464 ordinary shares by acquiring ~39,464 shares at $6.0485 per share.

Unlocking Value Via Sale of North American Businesses:

• Recently, BLD signed a contract with Eco Material Technologies Inc to sell its Fly Ash business in North America for ~A$1 billion consideration and realign its strategic focus on the Australian construction materials business.
• Collectively, with the sale of BLD’s stake in Meridian Brick, and the North American building products business (after the transaction completion), BLD will divest over $4 billion from its North American businesses.
• The sale completion is subject to fulfilment of stipulated conditions & completion adjustments and is anticipated to be completed in FY22.
• BLD plans to use the net proceeds for reinvestment and growth of surplus capital.

Trading Update ended Q1FY22 (30 September 2021): 

• The concrete volumes declined by ~2% YoY in Q1FY22 and New South Wales (NSW) was the most affected market.
• The quarry volumes increased by ~3% YoY in Q1FY22 due to revenue growth in the asphalt business.
• Revenue from continuing operations declined by ~1% on pcp in Q1FY22. Notbaly, ~$33 million impacted quarter’sEBIT, owing to the COVID-19 lockdowns, which reduced the overall volumes & margins in NSW and the asphalt margins.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the COVID-19 lockdowns & restrictions in Australia particularly in the key market of NSW. It faces the risk of lower volumes of construction materials and reduced profit margins due to COVID-19 costs and disruptions. 

Outlook:

• BLD expects a rebound in construction activity as the states come out of the COVID-19 lockdown.
• Though BLD continues to bid for infrastructure projects, however, major project work heading into the implementation phase remains slow. Restoration of construction work across states is expected to improve infrastructure activity in 2HFY22, especially road construction.
• The non-residential activity is anticipated to be largely steady in FY22.
• BLD expects to realise another ~$60 - $75 million of net transformation benefits in FY22 and doesn’t expect any material earnings from the property portfolio in FY22.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BLD gave a positive return of ~7.86% in the past three months and a positive return of ~20.91% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.790 - $7.430. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average EV/Sales multiple, considering the company has been trading at a premium in the past 3 years basis to its peers’ average EV/Sales multiple, an expected improvement in the infrastructure activity, and a steady outlook for non-residential activity. For this purpose of valuation, a few peers like James Hardie Industries PLC (ASX: JHX), Orica Limited (ASX: ORI), Adbri Limited (ASX: ABC), and others have been considered. Considering the current trading levels, expected net transformation gains, surplus capital from the sale of North American business, expected recovery in the construction activity, and indicative upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $5.740, as of 21 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

BLD Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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