Housing cycle bites
2Q23 RESULT
Need To Know
- Earning miss off the back of lower-than-expected volumes. Trend likely to remain for the rest of FY23.
- FY23 guidance downgraded. This comes as the second downgrade to guidance in the past 6 months.
- Macro conditions unlikely to offer any support for the next 12-18 months. Buy rating under review.
Investment Implications
Overview: Earnings miss driven by declining volumes in all geographies except America which was the only driver of growth. As a result of the decline in volumes, FY23 NPAT guidance was downgraded 10%, from the mid-point of guidance (US$650-710m from US$730m-780m). This is the second downgrade for FY23 that the group has put through in the past 4 months.
US Fibre Cement guidance has been downgraded, and now expect a 5% to 8% decline in 2H23 due to new single-family construction and moderation of renovation spend.
JHX is pushing ahead with its CAPEX plan. The US$1.6bn-1.8bn CAPEX budget originally planned for the next 4 years, was extended to 5 years at the last result. There is now no timeframe set against this investment, with timing dependent on macro conditions.
FY23 Result: Group revenue was US$998m vs US$1055m mkt. EBIT was 12% below consensus at A$218m. EPS 39cps vs mkt at 41cps. Cash flow was also poor. A new capital allocation framework was announced which includes a US$200 million share buyback, replacing the dividend.
Summary: The US housing market is seeing a broader-than-anticipated slowdown in new building construction. In our view, this could spill over to the repair and renovation market. We expect large consensus downgrades off the back of the downgraded guidance.
The announcement of the buyback in place of the dividend, suggests management is of the view the share price is undervalued.
In our view, the market is likely to remain circumspect on JHX as macro conditions (predominantly higher interest rates) impact the housing market. We are placing our Buy rating under review.
Stock overview
Share Price
Company overview
James Hardie Industries plc is a provider of fibre cement building solutions and is engaged in fibre gypsum and cement-bonded boards in Europe.
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