Boral’s annual meeting provided positive news that the impacts of COVID-related restrictions had not been as bad as feared. The corollary is that as conditions return to normal, BLD’s earnings cadence will improve.
The sale of USG Boral and the North American assets brought in proceeds of $3.2 billion of which $3.0 billion is to be returned to shareholders through a buyback. A small amount will be used to reduce debt to around $900 million. This is in addition to the now completed $859 million share buyback.
Other smaller divestments have either already been completed (Meridian Brick JV, timber business) or are up for sale (North American fly ash) which may add $1.0-1.3 billion to the pot.
BLD also has up to $850 million in surplus property assets that it will try to sell although this is unlikely to happen in FY22f.
The Transformation program aims to grow EBIT from the Australian business by $200-250 million compared to FY20. In FY21, it delivered $75 million of these benefits and is aiming for $60-75 million in FY22f.
BLD’s Australian business is now organised along national product lines rather than autonomous regional businesses.
BLD’s trading update for the first quarter of FY22 noted that lockdowns and restrictions on the construction sector in NSW had an impact from July through to September. But the negative impact from the closures in July were offset by the rebound in demand in September as activity restarted. A similar pattern occurred in Victoria and South Australia, but Queensland and Western Australia were unaffected. In total, BLD had previously thought the COVID related cost of lower volumes was around $50 million, but it turned out to be around $33 million. BLD now expects the full year COVID impact to be less than $50 million – the original 1Q22 estimate.
As long as the potential for COVID impacts remains, there will be uncertainty on earnings but equally, the company is seeing good demand uplift each time restrictions are removed. For BLD at least, COVID is only deferring activity, not deleting it.
Investment view
BLD’s major shareholder, Seven Group (SGH) now owns 69.6% of the company and its CEO, Ryan Stokes, is now chairman of BLD. In his first address as chairman of BLD, Mr. Stokes noted SGH’s stake “reflects its level of confidence in BLD’s ability to deliver substantial value creation” then promptly added that in recent years “Boral’s Australian business had not performed to its potential.”
The Transformation program benefits are already flowing, but execution will be an important factor to ensure full delivery.
The Board is still seeking two new independent directors in order to create a majority of independent directors.
As COVID impacts slowly recede, we see growth on the table for BLD but retain a cautious view on the influence of the major shareholder. We retain our Hold recommendation.
