The share price of Boral Limited (ASX: BLD) surged higher today after the release of its full year profit results that showed its US business is performing better than investors had feared.
The stock jumped 8.4% to $6.96 at the opening bell – making it the best performing stock on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.
This looks like a $9 stock to me and there are several revelations in the building materials supplier's full year results that are getting the market excited.
Some of the highlights include:
- A 34% increase in FY18 revenue to $5.9 billion and a 47% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to $1.1 billion.
- EBITDA margins expanded to 18% from 16.4% in the last financial year.
- Revenue is a little below consensus but its adjusted earnings per share (EPS) were a little ahead.
- Better than expected performance from the recently acquired US-based Headwaters business with synergies of US$39 million in year one – US$4 million ahead of target.
- Management declared a final dividend of 14 cents per share franked at 50% to take its full year dividend to 26.5 cents, or up 10% from last year.
The two key standouts in my view are the lack of margin pressure as rising costs are a big feature during this reporting season, and the strong performance of Headwaters which many naysayers thought could bring down the group's performance.
What's more, management is expecting further growth in its US business. EBITDA is forecast to jump 20% or more in FY19 as the company extracts a further US$25 million in synergies and as Boral continues to benefit from operational improvements and market growth (as long as the weather behaves).
The company is also expecting Boral Australia to grow its EBITDA by at least high single-digits this financial year if property sales were excluded. The results from the local division were inflated by $63 million from property sales in FY18.
Reassuringly, management said that the impact from the residential property slowdown will be more than offset by an expected rise in commercial, infrastructure and major projects activity.
Its 50% owned joint venture USG Boral business, which supplies gypsum-based lining systems and other building products, is expected to contribute to growth too with EBITDA expanding around 10% in FY19 from improvements in China, India, Indonesia, Thailand and Vietnam.
The US business contributes around 35% to group EBITDA and Boral Australia makes up about 60%.
The stock looks cheap in light of the guidance. The stock is trading on a FY19 price-earnings multiple of around 15 times when a peer like James Hardie Industries plc (ASX: JHX) is on a P/E of 28 times, and Adelaide Brighton Ltd. (ASX: ABC) is on 19 times.
I think Boral will be heading towards the $9 mark by year end.
