CSR made the most of positive conditions in the detached housing construction market to deliver a perky interim profit result. A visible stream of property earnings and an improved pricing and hedging position will underpin the aluminium result ensuring CSR is on track for a good year, despite COVID-19.
CSR announced its 1H22 net profit (before significant items) of $86.6 million, an increase of 30% over last year. The company declared a fully franked interim dividend of 13.5cps which is at the top end of its dividend policy.
The Building Products division benefited from the strong detached housing market which offset some lower activity in high density and commercial construction. CSR is expecting completion times for projects to continue to lengthen, reflecting supply chain issues, cost pressures and labour constraints. The first half was affected by considerable restrictions on construction due to COVID-19 and also some supply constraints from earlier cycle building materials such as timber. This latter factor may impact on volume growth in the back end of the year but demand will simply extend into FY23f. The smoothing of the cycle will help CSR to manufacture with more consistency and to raise its efficiency. Margins should remain high heading into FY23f and if the current supply chain and logistics issues can be resolved, this will also help to sustain or even lift margins.
The Property division delivered EBIT of $6.6 million, driven by the sale of the Moss Vale site in NSW. CSR has $18 million of EBIT from the Horsley Park (Stage 2.2a) and a couple of smaller transactions that will send EBIT towards $34 million for the year.
Aluminium prices have been rising so CSR has locked in more of this through its hedging program. This division is now set to deliver EBIT towards $35-41 million in FY22f. Importantly, higher coal prices do not appear to have impacted this business due to the coal passthrough mechanism with AGL Energy.
Investment view
Demand for key product categories such as plasterboard and bricks along with a more efficient manufacturing cadence has helped to lift margins in the Building Products division. Demand remains likely to push through into FY23f and along with a positive story on Property and Aluminium earnings, CSR has earnings momentum ahead. The effects of recent price rises are yet to manifest and this may add further appeal. If the building cycle peters out or supply chain issues become entrenched, then earnings growth may be at risk.
On balance, we have upgraded our recommendation from Hold to Buy.
