Building products group CSR Limited (ASX: CSR) on Tuesday surprised investors and analysts with a stronger-than-expected first half result that underlined the strength of the local building market over the last 12 months.
Profits
CSR reported a first half net profit after tax (NPAT) of $70 million, up 72% on the previous year and only $2 million below the full-year result from the 2014 financial year. Impressively the huge profit jump came from only a 15% increase in revenue.
The profit boost was primarily due to the impact of a once-off sale of a development site in Pyrmont and a recovery in the Aluminium business.
The building products segment earnings before interest and tax improved by 22%.
Dividend Boost
CSR has opted to maintain a dividend payout ratio between 60% and 80% of earnings. Earnings per share clocked in at 13.9 cents, up 72%, and the interim dividend per share was increased 70% from 5 cents to 8.5 cents. This represents an annualised yield of 4.7%, however CSR doesn't pay out any franking credits.
Slowing Building Approvals
A potential issue for CSR could be a slowdown in the rate of building approvals; particularly in NSW. Recently released ABS data found that approvals for the construction of new homes fell 11.0% across Australia in September, however this was mainly due to apartment blocks and townhouses, which were down 21.9 % on a year ago.
Not Deterred
CSR noted that longer term trends are positive and that the company expects NPAT to be between $111 million to $134 million for the year ending 31 March 2015. This depends on the settlement of a key property transaction and no material degradation in the local housing market. Interestingly, this is well above the $106 million expected by some analysts.
Competition and Mergers
CSR is also expecting to benefit from a proposed clay brick joint venture with Boral Limited (ASX: BLD). This would reduce overheads but the ACCC recently questioned whether the tie-up would reduce competition in the east coast market as it would reduce supplier numbers from three to two, with the other being Austral Bricks. The uncertainty may reduce some upside over the short term.
