Building products supplier Boral Limited (ASX: BLD) has started the year strongly but the share price fell on Wednesday morning following the announcement of net profit for the six months to December 31 of $104.5 million, compared to a loss of $26.3 million in the first half of the 2014 financial year.
Underlying net profit, which removes once-off charges and profits, jumped 23% to $112 million, broadly in line with analyst estimates. Boral announced a 21% increase in the group's dividend from 7 cents to 8.5 cents, representing a full-year yield of around 3% fully franked.
Merger with CSR
Chief executive Mike Kane confirmed that the joint venture between Boral and CSR Limited (ASX: CSR) would be formed in 2015 and is expected to result in revenue of up to $230 million and save approximately $10 million in management overheads.
Debt Increase
Boral is one company that has operations in the US but stands to lose from a lower Australian dollar. A large portion of the group's debt is US-dollar denominated, resulting in a $169 million increase in Australian-dollar-equivalent debt in the half due to exchange rate changes. Group gearing remains low at just 20% and investors will be pleased that Boral is forecasting the US business to break even in the 2015 financial year after five consecutive years of losses.
Time to Buy?
Boral is experiencing strong demand as a result of the strong Australian and US housing construction market. The main threats to the company are an increase in interest rates, a crash in the Australian housing market, and slowing of the US economic recovery.
Boral also faces competition in all of its markets and the company lacks a competitive advantage over peers.
Competitive Advantage
Warren Buffett is one of the most vocal proponents of investing only in companies with an economic moat or competitive advantage over peers. It means that competitors find it difficult to capture market share, or that the company's network is sufficiently large to prohibit new entrants into the market.
