James Hardie Industries plc

JHX Details

Net Sales for Q1FY20 Increased by 1% on pcp:James Hardie Industries plc (ASX: JHX) happens to be world leader in manufacturing fibre cement siding and backerboard. During the first quarter of fiscal year 2019, the Company changed its reportable operating segments. Earlier, the company maintained four operating segments i.e., (a) North America Fiber Cement, (b) International Fiber Cement, (c) Other Businesses, and (d) Research and Development. In the first quarter of FY19, JHX replaced its international Fiber cement segment with two new segments, i.e., Asia Pacific Fiber Cement and Europe Building Products. Recently, AustralianSuper Pty Ltd reported a change in Chess Depository Interests from 5% to 4.967% of the ordinary share capital of JHX. In another update, the company announced about the resignation of Mr Matthew Marsh, Chief Financial Officer (CFO) and Executive Vice President, Corporate, in order to pursue other opportunities. Meanwhile, Ms Anne Lloyd has been appointed as the company’s Interim CFO. Ms. Lloyd, an experienced corporate and finance executive, has been a member of the company’s Board of Directors since November 2018.

Q1FY20 Key Highlights for the period ended on June 30, 2019:Net Sales from Ordinary Activities for the period was reported at US$656.8 Mn, posting a rise of 1% over previous corresponding period. Profit from Ordinary Activities After Tax Attributable to Shareholders for the period was reported at US$86.5 Mn, a decline of 5% over previous corresponding period. Net tangible assets per ordinary share for the period was reported at US$1.29, an increase of 18% over previous corresponding period.


Q1FY20 Key Financial Metrics (Source: Company Reports)

What to Expect:As per the release, the company expects a modest growth in the US housing market in the fiscal year 2020. The company expects new construction starts between ~1.2 Mn and 1.3 Mn.EBIT margin for North America Fiber Cement segmentis expected to be at the top of its range of 20% to 25% for fiscal year 2020. This expectation is based upon the company’s continuous improvement in its operating performance at its plants, improved net average sales price and mix, flattening of input costs and modest underlying housing growth.

In Australia, it is anticipated that the company’s addressable underlying market will experience a high single-digit percent contraction in FY20, compared to the FY19.The growth is expected to be driven by primary demand initiatives, targeted across both residential and addressable non-residential segments. Its Europe building product segment is expected to achieve year-on-year net sales and EBIT margin growth.

Its net operating profit excluding asbestos for the year ending March 31, 2020 is expected between US$328 Mn and US$360 Mn.Its full year adjusted net operating profit is expected to be between US$325 Mn and US$365 Mn, with an assumption that the housing conditions in the United States remain consistent and in-line with the company’s new construction forecasts.

Stock Recommendation:JHX’s share generated a positive YTD return of 65.79%. Its gross margin for FY19 stood at 33.2%, better than the industry median of 37.9%. However, its EBITDA margin and net margin for FY19 were in-line with the industry median of 20.2% and 9.1%, respectively. Its ROE for FY19 stood at 60.8%, better than the industry median of 10.3%. On the valuation front, its EV/Sales and EV/EBITDA multiple on TTM basis stand at 3.5x and 15.5x, higher than the industry median of 1.6x and 8.9x, indicating an overvalued position at the current juncture. Moreover, the stock is trading close to its 52-week high level of $25.020.Considering the valuations, historical price movement and current trading levels, we advise investors to book profit and recommend a “Sell” rating on the stock at the current market price of $24.860, up 0.566% on September 30, 2019.

 
 JHX Daily Technical Chart (Source: Thomson Reuters)

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