Building materials producer Boral Limited (ASX: BLD) has climbed in share price by almost 17% since 19 December and investors would naturally want to know why and where it can go from here.
The company's price uptrend started in mid-2012 when the first signs of a recovering housing market were evident by higher building approvals, housing finance and low interest rates. Then, it was about $3 a share, so it is now a total 83.6% up to its current $5.51.
Joint Venture with USG Corporation
Both the Australian and U.S. housing markets are improving and those two regions account for about 89% of the company's total revenue. In January it announced a new joint venture with the U.S. company USG Corporation, the largest producer of gypsum plasterboard. This will give it more exposure in the giant building materials market there, as well as access to assets in China and the Middle East for production.
After the JV announcement, it was disclosed in the news in the U.S. that chairman Warren Buffett's company Berkshire Hathaway Inc (ASX: BRK.A, BRK.B) acquired more shares in USG Corporation through convertible bonds, making the holding company the largest shareholder in USG. The well-known investor sees the coming growth in the housing sector.
2014 first-half results
In late January the company had already given a trading update, expecting underlying net profit after tax would be around $90 million. 2013 first-half profit was $52 million, so that would represent a 73% gain. On the day of the announcement, the share price was $4.70, in a price range since mid-December.
When the half-year results came out last week, the result turned out to be $90 million in underlying NPAT, and earnings per share before significant items came out to 11.6 cents per share, up from 6.8 cps. Each business segment made gains in operating EBIT.
Foolish takeaway
The housing market has been rising, with strong movements in Sydney and Melbourne. The flow-on effect usually moves outward as investors and property owners seek out properties or build new homes in areas where prices are lower and rental yields are higher.
It is hard to say how long it takes for a full property market cycle to develop and issues such as rising unemployment and the weakness in mining and manufacturing can impede the expansion.
However, building materials companies like Boral, Fletcher Building Limited (ASX: FBU) and CSR Limited (ASX: CSR) have all hit new 52-week highs within the past month, so the signs are promising.
